If you’re saving for your dream home, your money should work as hard as you do. While investing in the stock market might seem like the obvious choice, it’s important to minimize risk with your down payment and other homebuying-related funds. So if you’re getting ready to embark on your search, consider safer alternatives like a high-yield savings account (HYSA), money market account, or certificate of deposit (CD). In addition to offering compound interest, these accounts are typically FDIC-insured up to $250,000, offering peace of mind as you build your savings. Here’s a closer look at these options:
When it comes to saving for a down payment or other short- to mid-term financial goals, a high-yield savings account is usually your best bet. These accounts provide higher interest rates than traditional savings accounts.
In fact, some HYSAs are offering rates up to 4.4% APY (annual percentage yield) as of May 2025, compared to the national average of just 0.41% APY for a traditional savings account. To put it in perspective: if you put $10,000 in a HYSA, you would generate more than $440 in interest over the course of a year, compared to just $41 if you were to use a traditional savings account. Plus, HYSAs are designed with flexibility in mind, allowing you to access your funds without penalties (although many banks cap the number of withdrawals or transfers you can make per month). Just keep in mind that the interest rate is variable and may change depending on the federal funds rate.
Think of a money market account as a hybrid between a checking and savings account. It not only lets your balance earn interest but often comes with the added convenience of debit card access and check-writing capabilities.
Like high-yield savings accounts, MMAs offer variable interest rates, with many offering rates around 4% or higher.
However, many MMAs require you to maintain a minimum balance and may charge a monthly fee if the balance falls below that amount. If you’re just beginning to save or don’t have a large initial deposit, a high-yield savings account might be a better fit.
Certificates of deposit allow you to deposit a fixed amount of money for a set period—anywhere from a few months to several years—in exchange for competitive APYs. Currently, numerous CDs offer rates of 4% or higher, giving your savings an impressive boost.
The biggest tradeoff is accessibility. Your money is locked in for the duration of the term, and withdrawing early usually comes with a penalty.
If something comes on the market before the term of the CD is over and you fall in love with it, you’re going to have to pay those penalties. I don’t recommend CDs unless you’re 100% certain that you’re not going to break them.
Sure, keeping your down payment funds in one of the above options might cause you to miss out on the occasional stock market rally. But more importantly, you’ll protect your hard-earned money from market volatility and a potential shortfall.
Managing your savings is a critical step in the homebuying journey, so involve your real estate agent, mortgage broker, and financial advisor early in the process to make sure your funds are in the right place at the right time.
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