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Ask Jesse: When saving for a home, where should we keep our money?

We are debt-free and want to start saving for a 100% down payment for a house. Do you have any suggestions as to where the money should be held while saving? Savings account or money market? Any info would be appreciated. Thank you, Kelly

What a great goal! It can be daunting at times, but persevere and you will not regret it.

When we were saving for our house, we put every last penny we could squeeze out of our budget in a money market account. The reason we chose to use a money market account was because they do tend to pay more in interest per month than a regular savings account. Plus, you have the benefit of being able to write checks against the account when you want to take money out.

With a savings account, you need to transfer money and do not have as easy access to it. That said, if you like the idea of having an extra safeguard in place so you cannot get at your money very easily for discipline purposes, a savings account is still an okay choice. It all comes down to the reasons for doing what are doing.

Money markets traditionally pay out more in interest because they are tied to a market and carry a little more risk than a savings account. So, if the money markets change, you run the possibility of having your interest rates fluctuate.

In all my times of utilizing this tool, I have never lost money. I have only seen the rate interest is paid out increase or decrease, depending on how the economy is doing.

Jesse Paine is a licensed attorney who owns his own law firm. He’s married to Crystal and is the numbers nerd of the MoneySavingMom.com team! If you have a question you’d like him to answer in a future column, you can submit it here.

The content of this column intended for informational use only and is not to be construed as providing legal, investing, accounting, or other professional advice. Your situation is factually specific and you should accordingly seek qualified professional counsel concerning your specific legal, investing or accounting needs.

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  1. Denise says

    ooo I like the Ask Jesse column! Keep it coming!

    However, you def. need to check interest rates. I work at a bank and our money market accounts have TERRIBLE rates so I would never open one. Obviously savings account rates aren’t real good right now either but at least where I work they are a little bit higher :)

    Rates just depend so much on where you live from what I’ve learned where I work too :(

  2. kate says

    since you’re looking at semi-long term savings and have a pretty good idea when you’re going to use the money, you should also look at CDs. you should be able to get a couple percentage points of interest if you put enough money into each one.

  3. says

    I love these columns :). I’ve actually been saving up my down payment in a CD for awhile (when I started it, CD rates were a lot better… I think if I were starting out now, I would choose a Money Market just due to flexibility of the account bc with CDs, there are fees for withdrawal). My CD matures just in time for us to purchase our home, too. It’s not 100% down (that would be virtually impossible here with our incomes), but it’s a nice chunk and way more than what many people I know who are buying homes have put down.

  4. TR says

    Sorry if I seem dense, but could you explain how a money market account works. I’m woefully ignorant of my options.
    Thanks! =)

    • Denise says

      to put it very simply it is basically a savings account with limited check writing capabilities (at least that’s how it works at the bank I work at in Ohio).

  5. says

    I have always used a Money Market fund. It doesn’t accumulate a lot of interest, but it does accumulate more than a regular savings. My favorite part is the fact that I can use it like a savings with minimal withdrawal regulations. I don’t like to pay to get my money out if I need it for an emergency.

  6. Michelle says

    Do you mind letting us know if it was a online bank money market account or was it local? And if online, such as ING, would you be able to share the name of the company. I know at one time ING was promoted on your website. I tried looking up the best yeild on money market accounts online and ‘Everbank’ and ‘Ally’ bank came up. Do you know anything regarding these? Thanks so much. Desperately searching for a good qualifiable money market account . . . DESPERATELY!!!!

  7. VP says

    About two years ago, I opened an account with Ally and I have been very happy saving with them.

    I have my checking account with Wells Fargo and I previously had my saving with them as well. I think I really decided to make the switch when I realized that I was getting only a few cents per month in interest. It was not even worth it at that point (I only had a small amount in savings when I began). Then Wells Fargo wanted to implement monthly “service” charges and I said FORGET IT. With a family member’s recommendation, I transferred my money over to Ally and have been saving ever since. When I first switched to Ally, I was getting a couple cents A DAY, instead of a couple cents a month…much better.

    There is one CON to consider about Ally. Their online bank processing is a little slower than regular banks. This does not bother me, because I am saving for the long term (I never remove money from my savings account at Ally- I just keep adding to it). For example, it takes a couple business days processing time to transfer money to and from Ally.

    I have a Money Market Savings and I think I get about .85% (compared to Wells Fargo’s .05 percent…WF is so low it almost makes me laught!). I also have a few CDs. Right now Ally’s CD percentages are just OKAY (mine are a little better because I got them over a year ago)…so I would stick with a MMS and avoid CDs just for the flexibility aspect.

  8. Stephanie says

    As a former finance manager handling investments, the first thing I would do is determine approximately how long it will take you to get to your savings goal. Is it 2 years, 5 years, 10 years? I can’t imagine keeping my savings in a low-paying money market account if it’s going to take 10 years to reach my goal. You’d want to invest in some long-term CDs or treasury bonds instead. If you go the CD route, it pays to shop around at various banks. Ask if they have any promotional rates, i.e. a 13-month CD that pays significantly better than a 12-month CD.

    If your savings horizon is less than 3 years or so, check out the rates at your local credit union. We have a checking account with our credit union that pays 1.80%, the only catch is that you have to have your paycheck direct deposited into it. We are disciplined enough to combine our checking with savings to get such an attractive rate, but I know that doesn’t work for everyone.

  9. Allison says

    I used to keep my savings in a money market through my bank, but did a little research and found that ING had higher rates for a regular savings account. So even though it seems like a money market would have higher interest rates, it’s worth comparing rates to see if that’s really the case.

  10. Sarah G says

    We started banking entirely with a local credit union. They generally earn much higher interest rates with checking accounts, savings, and other investment accounts. In fact, when we first opened our free checking account we were earning over 4% interest…now it is right at 2% (due to the economy). In addition, interest rates on loans are usually much lower too.

    I’d recommend going with a credit union if possible!

  11. hope64 says

    When we were saving to purchase our home, we had a 13 year time frame in which to put “mortgage payments” into savings. We had paid off our first home and put what amounted to our monthly mortgage payment into long-term CDs. At that time we could get a whopping 5 percent on 5 year CDs. Don’t we all long for those days again??? When it got closer to the time frame in which we knew we would buy, we let them mature and put them in a high interest rate checking account with a local bank.

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