Keep cash in a HYSA or taxable account for house down payment?

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PersianRugs
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Joined: Thu Apr 11, 2019 1:46 pm

Keep cash in a HYSA or taxable account for house down payment?

Post by PersianRugs » Sat May 25, 2019 8:44 pm

I'm currently saving up money for a down payment for a house. I have no real time frame for the house purchase really, maybe sometime in 4-8 years when the time is right.

Currently I have the money in a 2.4% HYSA, but I was considering putting the money in a taxable brokerage account.

What are the pros/cons of this for my time frame if I want to take the money out within ~4-8 years. Should I just keep it in the HYSA? Is it worth it to put in a taxable account? I'm not really sure about the tax savings between the a HYSA vs taxable.

motorcyclesarecool
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Re: Keep cash in a HYSA or taxable account for house down payment?

Post by motorcyclesarecool » Sat May 25, 2019 9:06 pm

For your risk horizon, the assets you would buy in a brokerage account would tend to earn more interest, and therefore carry no tax advantage versus online high yield savings account. Both accounts are equally taxable.

With a longer time horizon you would be well advised to purchase assets that will generate capital gains instead of interest, and therefore be more tax efficient. The brokerage account makes that possible.

There are too many unknowns to be exactly sure which account would be better. Much depends on your individual facts and circumstances.
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

MotoTrojan
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Re: Keep cash in a HYSA or taxable account for house down payment?

Post by MotoTrojan » Sun May 26, 2019 12:21 pm

A HYSA is a taxable account. What would you invest in in the brokerage? Stocks are too risky if you absolutely need this money. A bond fund may beat HYSA but will have some principal risk. If high federal tax you may come out ahead with a tax exempt fund.

If you’re in a high tax state a treasury money market or rolling t-bills (Fidelity does this) could net you 20-60+ after tax bp without any additional risk.

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grabiner
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Re: Keep cash in a HYSA or taxable account for house down payment?

Post by grabiner » Sun May 26, 2019 8:22 pm

You should only put the money in stock if it will be twice the amount that is needed for the house down payment. That way, even if the stock market crashes, you will still have the money. (You don't actually need to pay for the down payment with stock if you do this; you can sell stock for the house down payment and move an equal amount in your IRA from bonds to stock, keeping your taxable account in stock for tax efficiency.)

For 4-8 years, you might use an interemediate-term taxable bond fund (if you are in a low tax bracket) or an intermediate-term municipal-bond fund (if you are in a high tax bracket). You would probably want to move to shorter-term bonds, or back to a savings account, as the need approaches.
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mortfree
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Re: Keep cash in a HYSA or taxable account for house down payment?

Post by mortfree » Sun May 26, 2019 8:33 pm

How much do you think you will need for the down payment?

Can you save that amount in the next 4-8 years?

If so go ahead and invest what you have saved so far and start over. Otherwise don’t put the money at risk.

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