Is putting your home down payment on a CD a smart bet?

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It really depends on your situation.

It’s hard to buy a home these days as house prices are rising across the country. That means if your goal is to pay his 20% down payment, you’ll need to hoard more cash than you needed a few years ago.

If you’re saving up to build a house, you might want to speed things up so you can stop renting and own one as soon as possible. And to reach that goal, you may be inclined to do what you can to get a higher return on your money.

Now, one thing to know is that investing your home down payment in a brokerage account is generally not a good idea. Instead of making it happen faster, it might hinder it.

But what about CDs? The advantage of putting money in CDs is that cash is generally available at a higher interest rate than a regular savings account.

But is it wise to lock your home down payment on a CD, or will it backfire?

When do you think you will need the cash?

The advantage of saving on CDs is that the interest rate on cash is higher. However, in exchange for that higher rate, you are promising to keep your money tied up for a preset period of time. Also, if you cash your CDs before they expire, you risk paying months of interest. If you’re trying to achieve a big financial goal, like buying a house, it can be a big setback.

So locking your down payment to a CD is risky. If you open the CD and want to make a housing offer before the deadline, you risk getting penalized. Or you may have to delay buying a home to avoid penalties and miss out as a result. for a big chance.

That said, keeping your home down payment on a CD isn’t necessarily a bad idea. But it depends on where you are in the savings process.

Let’s say you want to save $50,000 for a 20% down payment on a $250,000 house. If you’ve been saving for a year and have saved $15,000 so far, that’s great progress. But that also means you probably aren’t thinking about buying a house this year, in which case investing $15,000 in her 12-month CD will save you money without taking too many risks. You can raise interest rates.

But let’s say you win $40,000 out of your $50,000 goal. If so, chances are you’ll have enough cash to put it at home at some point next year.

A savings account is not a bad choice

You can make more money with CDs than with a savings account. But today’s savings accounts actually pay out pretty generously. So if you don’t like the idea of ​​putting your down payment on a CD, don’t do it. Stick to a regular savings account instead. This ensures that you have full access to your money at all times with no restrictions imposed.