The typical cost of a new house is over $330,000. That is a lot of money to save for in a pandemic wrecked economy. So where should you keep your money while saving for a house?
You should keep in mind that saving for a house is a time-exhaustive process. It takes time to save enough money for a down payment, closing costs, and pay for all of the ancillary costs that come after buying a house, like the monthly mortgage payment.
There are many ways to allocate your money while saving for a house. You can start making investments or open a CD or money market account.
The simplest thing you can do is to automate a savings account and begin automatically saving money every week. That way, you can keep track of your goal of saving money for a house.
Savings Account
The easiest way that you can begin saving for a house is to open a savings account at your local or online bank.
Sometimes the easiest approach is the best one. Also, saving for a house can seem like an anxiety-inducing and overwhelming endeavor to try to accomplish, never mind starting out to do.
It’s the 21st century, so you can begin opening an online savings account. The only downside to a traditional or online savings account is that they usually offer low-interest rates.
You will find with a little cursory research that most savings accounts offer a 0.05% interest rate. And that estimate comes from the Federal Deposit Insurance Corporation, the federal regulatory body that ensures every bank account up to $250,000.
Before you start panicking, you should know that most of the better rated online saving accounts offer interest rates between 0.50% and just under 1%. And no, that is not a lot, but it is not anything either.
The important thing to keep in mind is that you should open a savings account to begin saving money in a disciplined way.
While interest rates are important to consider, you should open a savings account to train yourself to begin saving money automatically.
You are saving for a house after all, right?
So, start by automating your savings. This is especially easy to do if your salary is directly deposited into your bank account.
You can easily open an online savings account and then allocate a portion of your direct deposit pay into your savings account every time you are paid.
For example, you can set up an online savings account to automatically allocate $10, $20, or $50 into it every time you are paid.
Best Online Savings Account When Saving for a House
How much you decide to save per check via automated savings is up to you. It shouldn’t be a random number either.
Make basic budget calculations relative to how long it will take you to save for a down payment and the mortgage in general. So, if you automatically save $50 and then deposit it into a savings account, how long will it take you to reach your goal?
Would you reach your goal of saving for a house faster if you and your spouse or partner both began automating your savings?
I cannot stress enough that automating a savings account may be the best way to go for you. It takes the temptation of not saving, or wasting money, out of your hands.
If you been convinced to do that, surely you would like to use an online savings account that offers better interest rates than 0.05%.
Here is a list of some saving accounts with higher interest rates, but be warned, it is hard to find online savings accounts with interest rates over 0.60%.
Ally
Ally is famous for being one of the premier online-only banks that offers users no monthly fees and no minimum balance requirements.
Ally famously has no fees because the bank has zero physical banking branch locations.
However, you can only deposit money into an Ally savings account via a transfer from another bank account or by mailing a money order.
Ally interest rates are 0.50%. If you are disciplined and save some money every week, that can go a long way towards saving for a house.
American Express High Yield Savings
American Express is usually marketed as a credit card and financial lending institution for people of elite and sophisticated wealth.
However, as long as you are financially responsible, anyone can open an American Express High Yield Savings account.
You can earn a 0.60% interest rate on your savings. Also, there is no minimum deposit requirement and there is no minimum balance requirement.
Check with the official American Express website as the terms of this savings account offer changes sometimes.
Discover Online Savings
Discover is an FDIC-member financial institution. You won’t have to pay any monthly maintenance fees and there is no minimum balance requirement.
A Discover Online savings account comes with a 0.50% interest rate.
Saving for a House
Try to consult with a financial advisor. Don’t try to undertake saving for a house on your own.
Again, you can start making investments, but that takes money and research.
The easiest way for you to start saving for a house is to automate your savings and follow your progress weekly. Calculate how long it will take for you to meet your goal and adjust accordingly.
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Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.
