The 4 best places to put your money when saving for a house

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If buying a home is in your future, you’ll want to start saving up. But where should you keep your money?

When saving for a down payment, it's essential to keep your money in a safe and accessible place while also earning some interest. It also depends on your time horizon and when you plan to buy a home.

But one thing’s for sure: Separate your down payment savings from your emergency fund to help you stay on track and purchase a home on your timeline.

Here are four of the best places to consider when saving up to buy a home. 

The best savings accounts for buying a home

We evaluated several savings accounts to compile a list of the best places to save up for a down payment. Each features an APY of 8X the national average of 0.59% (as of Nov. 2023), with minimal fees and a low (or no) required initial deposit.

Each account is backed by the Federal Deposit Insurance Corporation (FDIC), which insures deposits of up to $250,000 per person, per account.

BMO Alto Online Savings Account

• APY: 5.10% (variable rate)
• Minimum opening deposit: $0
• Minimum balance requirement: None
• Monthly maintenance fee: None
• Accessibility and convenience: Account access is only available through the website; No mobile app, ATM access, or mobile check deposits
• Customer support: Available by phone seven days a week
• Other details: Unlimited withdrawals and transfers

Bask Bank Interest Savings Account

• APY: 5.10% (variable rate)
• Minimum opening deposit: $0, but the account must be funded within 15 days to avoid closure
• Minimum balance requirement: None
• Monthly maintenance fee: None
• Accessibility and convenience: Access your account online or via the mobile app 24/7; ATM access is unavailable
• Customer support: Available by phone Monday through Saturday
• Other important considerations: $35 outgoing wire transfer fee, transaction limits (6X per month)

Vio Bank Cornerstone Money Market Savings Account

• APY: 5.25% (variable rate)
• Minimum opening deposit: $100
• Minimum balance requirement: None
• Monthly maintenance fee: $0 (if you opt for e-statements)
• Accessibility and convenience: Mobile banking and the mobile app are accessible to account holders who enroll in Online Banking
• Customer support: Available by phone seven days a week
• Other important considerations: No debit card or check-writing abilities like other money market accounts and no ATM network

Everbank 9-Month Certificate of Deposit

• APY: 5.50% (fixed rate)
• Minimum opening deposit: $1,000
• Minimum balance requirement: None
• Monthly maintenance fee: None
• Accessibility and convenience: Funds must remain in the CD for 9 months to avoid early withdrawal penalties
• Customer support: Available seven days a week
• Other important considerations: Additional deposits aren’t allowed during the CD term

How much do you need to save to buy a house?

The amount you need to save will depend on various factors. It's recommended to save at least 20% of the house's price for a down payment. There are options available with lower down payment requirements, like FHA loans (3.5% down) or conventional loans (5% down).

Another cost to consider is closing costs, which are fees tied to finalizing the purchase of a home. This includes appraisal fees, attorney fees, title insurance, and more. Closing costs may range from 2%-5% of the home's price.

It's also wise to have some money set aside for unexpected expenses that may come up after you buy the house. Aim for an emergency fund of 3-6 months' living expenses. Don't forget about moving costs, furniture, appliances, and any other renovations you may want to do once you move in.

To get a rough estimate, let's assume you're looking at a $300,000 house. Saving 20% for the down payment would be $60,000. If you include closing costs and other expenses, a conservative estimate may be around 25% to 30% of the house price, which would be $75,000 to $90,000.

You’ll also want to have a good idea of what your mortgage payments will look like once you buy. You can use a mortgage calculator to figure out your monthly payments.

How to save money for a house

Saving money for a house requires discipline, planning, and a solid strategy. Depending on how big of a down payment you need to purchase a home, the journey may be more of a marathon than a sprint.

First, set a savings goal. Having a specific target will help you stay motivated and track your progress.

Then, take a close look at your income and expenses to identify areas where you can cut back and save more. Allocate a portion of your monthly income towards your house savings goal.

Consider trimming unnecessary expenses, reducing discretionary spending, and finding ways to save on bills, groceries, and entertainment, says Joseph Melara, a real estate agent in Palm Desert, California.

Look for opportunities to boost your income, such as taking on a side gig, freelancing, or pursuing a higher-paying job. The extra income can be directly allocated to your house savings.

Set up automatic transfers from your paycheck or checking account to a savings account dedicated to your house fund. This way, the money will be saved before you can spend it, making saving more manageable and consistent.

How to pick the right savings account when saving for a house

Savings accounts aren’t a one-size-fits-all type of deal. You’ll often find they share similarities, and each has the potential to help you grow your down payment savings faster. Still, there are some key factors to consider, including:

• Interest rates: You’ll earn interest or an annual percentage yield (APY) on your savings. Ideally, you want an account with a high APY. “High-yield savings accounts are a safe and accessible option, offering competitive interest rates to help your money grow steadily,” says Melara.
• Minimum balance requirements: Many high-yield savings accounts require you to maintain a minimum daily balance to earn the highest possible interest rate. You may get a lower return on your money if you can’t meet this threshold.
• Minimum deposit requirements: It’s also not uncommon for financial institutions to require a minimum deposit to open an account. That said, there are high-yield savings account offerings from online banks that don’t have this rule.
• Fees: Does the account come with monthly maintenance fees and other costs? Can you have the fees waived if certain conditions are met? Ideally, you want a savings account option with little or no fees to maximize your earnings.
• Accessibility and convenience: Do you prefer in-person support, or does an online bank work for you? Online banks typically feature savings accounts with more competitive rates and lower fees than traditional accounts from brick-and-mortar banks.
• Liquidity: Is there a chance you’ll need to pull from the funds soon, or do you have an adequate emergency fund elsewhere?

The bottom line

Saving for a down payment may seem daunting, especially when mortgage rates are high. But that doesn’t mean you should put your homeownership dreams on hold. Start by creating a realistic savings plan and strategically selecting where to stash your cash. That way, you’ll be one step closer to saving up for a down payment to buy your first or next home.

Editorial disclaimer: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.