A Separate House Downpayment Savings Account

[Savvy]

Hello Bogleheads,

Thank you in advance for your help!

My wife (24) and I (23) are looking to save for a 20% house downpayment in the coming years. We are currently renting. After maxing our Roths, HSA, ESPP, giving/donating ~10% gross income, and contributing the employer match to our respective 401Ks, we expect to be able to set aside ~$12K annually (from extra cash and selling the ESPP) for a house downpayment.

We keep a small amount in our checking account to cover monthly expenses and pay off our CCs. Beyond that, we have a savings account with ~3 months worth of expenses.

When saving for a house downpayment, however, we would like to keep the amount in a separate account. Since we're not sure if we'd be buying a $60K town home in 1-2 years or a $200K home in 2-4 years (or anything in between), it seems that I-bonds may not be the best option. Can we hold separate savings account within the same bank for the downpayment (US Bank), should we utilize a Vanguard Money Market account, or try another avenue?

Savvy

[Alex Frakt]

When I was in your situation, I used Vanguard Limited-Term Tax-Exempt.

[stan1]

Other options are "high yield" FDIC/NCUA insured savings accounts (now around 0.7-0.8% at some places) and maybe 0.1%-0.2% higher for 12-24 month CDs. Some people use places like Ally Bank or Alliant FCU. Or look at this thread on Fat Wallet:

http://www.fatwallet.com/forums/finance/783099/

[jmg229]

We used an ING savings sub-account for this. We had our primary checking there too, with different savings sub-accounts for each major thing we were/are saving for (house, cars, travel, etc).

[foxfirev5]

For the short time period I would use an online bank. Currently I use Ally for my car/transportation, CapitalOne for my self imposed HOA and ING for vacation/recreation.
At this point I don't see anything at Vanguard to meet thse needs. Prime MM has no return at all so I just keep a couple hundred in for my brokerage swing acct.

[dhc]

My wife and I are in a very similar position and have an account at CIT for this. At 1.05% with FDIC insurance, I'm happy - we won't lose any of it and we get enough interest to feel like the account is actually helping us

[Watty]

Can we hold separate savings account within the same bank for the downpayment (US Bank), should we utilize a Vanguard Money Market account, or try another avenue?

What I did years ago was that I saved up my first down payment by having part of my paycheck automatically deposited in a saving account at a credit union that was across town. Getting an ATM card was optional then and since it was a saving account I could not write a check to get to the money.

The credit union was closed on Saturday to this meant that the few times I had to dip into because of a large expense I had to go there in person during my lunch hour and this took about an hour and fifteen minutes to do (without eating lunch) so I could not do this without some planning.

This made the money separate enough so that accumulated pretty quickly and I was able to keep it separate from my other money.

Where ever you save it make sure that it is not easily accessable.

[Savvy]

Thank you all for the responses.

Although past returns have limited to no indication of future performance, it seems that the Vanguard Limited-Term Tax-Exempt fund is relatively safe and would offer a better return than my options though bank accounts like Ally or CIT. Am I missing something?

https://personal.vanguard.com/us/funds/ ... =INT#tab=0

If the Vanguard Limited-Term Tax-Exempt fund is not ideal, I will likely go with CIT or Ally.

Savvy

[Savvy]

FWIW, I opened an Ally online savings account. The account will not have more than a few thousand until after my wife and I max our Roths in 2013.

Thanks again for all your help!

[Village Idiot]

Would I-bonds not be a good vehicle for the 2-4 year window? At least you would keep up with inflation.

[Savvy]

Would I-bonds not be a good vehicle for the 2-4 year window? At least you would keep up with inflation.

Good question. As we continue to determine our desires and timeline for a house, we will try to transition some of our savings to I-bonds. We are most likely a few years away from a purchase. Because we could, however, pursue a house purchase in under a year, having mostly I-bonds for our house savings is concerning.

Savvy