Where to put money for down payment?

If you're going to need the money that soon (in 6 - 12 months), then you want to simply save the money. You do not want to risk the money in a mutual fund. I know you might not be excited about it, but plain, old, boring savings is your best and wisest bet. Investing is for money that you won't need for at least 7 or so years.

TIAA Direct [tiaadirect.com] is offering 1.25% right now.

Quote from Linnx : I have saved up a down payment for a house which I plan to purchase within the next 6 months to 1 year. Right now the best interest I can find is Amex savings at 0.75% APY. I know there me be others that offer slightly more, but as far as savings account, I'll leave it there for now. I was thinking about putting it in Vanguard low risk mutual fund. Seems like I can get 2-5% with really low risk (According to their research tool). Anyone have any other ideas on where to put a downpayment that I would like to be able to use in 6months or so? I know the safest is a savings account, but it would be great to get more than 1% interest. Thanks!

put it in a 6 month CD? but i guess that means you really cant use your money for 6 months.

Put it in the highest-yield CD you can find, then pull it out when you need it. Check rates for different CD lengths, and check out what the costs are of pulling out early, but from what I've read you can actually do better pulling out early from a 5-year CD, rather than a full 6-month or 1-year CD.

Quote from DWad : Check rates for different CD lengths, and check out what the costs are of pulling out early, but from what I've read you can actually do better pulling out early from a 5-year CD, rather than a full 6-month or 1-year CD.

Hell to the ya! Ally only takes 2 months penalty, or atleast they did when I signed up for my CD. 2% even with a 2 month penalty doesn't take long to break even when you look at the short term rates!

Does anyone know of any other banks like Ally with a 2-4 month interest penalty? I agree with everyone here that it is an amazing way to "lock-up" your money, get an interest rate higher than savings, yet still have the flexibility to take it out when needed without too much pain.

It doesn't seem like many (any?) other banks offer this? Many I have seen tier their early withdrawal penalty based on the term of the CD, and for the five year ones they seem to take anywhere from 6 months to 1 year's worth of interest!

I like Ally a lot and already have a CD there; however, given their recent stress test failures and the state of affairs, I'd like to open this one somewhere else.

Anyone have any recommendations for banks that have a similar 2-4 month early withdrawal penalty?

Thanks!

(Sorry for hijacking the thread --- but I think this is a great way to keep your down payment money readily accessible but earning a greater amount of interest than a variable high-yield savings account).

Quote from LivninSC : Hell to the ya! Ally only takes 2 months penalty, or atleast they did when I signed up for my CD. 2% even with a 2 month penalty doesn't take long to break even when you look at the short term rates!

"I like Ally a lot and already have a CD there; however, given their recent stress test failures and the state of affairs, I'd like to open this one somewhere else."

Even though one bank may not be as 'healthy' as others, your deposits (including CD's) are federally insured by the FDIC for up to $250000. (You can actually check out the bank's FDIC insurance certificat if you're so inclined.)

Quote from DealSeeker : Anyone have any recommendations for banks that have a similar 2-4 month early withdrawal penalty?.

I don't. I looked around for awhile and believe that PennFed's penalty wasn't that bad but then they changed it and made it horrible. If you find one lemme know

Of course - however, going through a bank shut-down is not an ideal situation for your supposed "liquid" assets. If the FDIC pays out on the deposits, you could potentially wait a bit of time for your money (they aim to get it to you within a few business days, but the law provides them with great flexibility to try to find a buyer). If they find a buyer, the purchasing bank does not need to honor the terms or APR of the CD and while they cannot "penalize" you for withdrawing the money, they can charge administrative fees and the such (and that's if and when you find the right person at the right branch to discuss it with).

In any event, long story short, I think its prudent not to have all of your "liquid" cash at one institution that just failed its latest regulatory test even if the money is insured by the government (of course, there is also no guarantee that the government will keep the insurance limits at $250,000 during the term of your CD nor that the FDIC will actually pay out on the insurance if the need arises).

Quote from tiedyed1 : "I like Ally a lot and already have a CD there; however, given their recent stress test failures and the state of affairs, I'd like to open this one somewhere else." Even though one bank may not be as 'healthy' as others, your deposits (including CD's) are federally insured by the FDIC for up to $250000. (You can actually check out the bank's FDIC insurance certificat if you're so inclined.)

Quote from LivninSC : I don't. I looked around for awhile and believe that PennFed's penalty wasn't that bad but then they changed it and made it horrible. If you find one lemme know

Will do - yeah, I think they (PenFed) were just as bad as my credit union - 6 months, or something close to that, right?

Check your local credit unions. I'm in Oregon, and I get 2% on my checking account as long as I meet 2 requirements: At least 1 direct deposit (not a problem for me) and at least 10 or 15 debit card transactions (again, not a problem since I pay for parking frequently, it's a low-spend use). The 2% is paid monthly on the average daily balance up to the first $30,000. I get about $50 a month, plus they reimburse ATM fees if I use an ATM outside of the credit union network.

Just an idea, but most don't even consider credit unions for some reason. Going this route could save even more, all the way up to the day the check is cashed for your down payment.

Quote from DealSeeker : Will do - yeah, I think they (PenFed) were just as bad as my credit union - 6 months, or something close to that, right?

It depends on the CD. I was looking at their 7 year and if I recall correctly that bad boy had a 1 year penalty associated with it!

I am a 25-year old home owner and a finance blogger and I honestly find it hard to advise someone on how to invest their down payment for 6 months to a year since you are arguably about to make a terrible financial investment.
[epicfinances.com]
That isn't to say you shouldn't buy a home, there are non monetary benefits that can far exceed the loss of money in regards of buying a home. Just keep it in cash (or toss it in a CD, which is basically cash) if you are committed to buying a house.

^Your blog post sounds very biased, to be honest.

What about the potential rental income that can be made? Tax reliefs? Indeed, if we are only talking about 3.5% appreciation in price, housing doesn't look attractive at all. When we combine it with the rental income, I think it will be a pretty good investment.

Now, compared to stocks, real estate investment is definitely no match in terms of return, but the risk in stocks are also significantly higher. Liquidity is another thing to consider too.

All in all, I think real estate investment is a decent investment even at this time, as long as the prices don't go down like it did in 2007-2009