We're starting to save up for a down payment on our first home, but I'm wondering where to park the money for the next two-to-three years while we accumulate. Savings, CDs, short-term bond funds, etc.?

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  • 3 out of 3 people found this answer helpful

    CFP®, EA Alexandria, VA

    All three are acceptable.  A couple of thoughts...

    • Savings accounts will have the lowest interest rates of the ones listed, but virtually no risk.
    • Your could consider money market funds, if interest rates rise, you'll capture that rise faster than if you have a savings account
    • You could do a CD ladder which would involve CDs with varying maturity dates between now to three years from now.  You'll get a higher return on the longer term CDs and if interest rates go up, you will be able to reinvest the short term CDs at a higher rate
    • Short-term bonds will most likely get the highest return.  However, if interest rates go up, the bonds will go down in value.  It won't be as extreme as long-term bonds, but it will occur.

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  • 1 out of 2 person found this answer helpful

    CDFA, CFP® Waltham, MA

    Unfortunately short term interest rates are still very low.  however, the most important thing for your down payment fund is that it be there when you need it in 2-3 years.  I would go for the highest return that is FDIC insured, whether it is CDs or money market.  I would not go for a short term bond fund.  As we expect interest rates to increase over the next few years, that means that bond fund returns will be iffy at best.  You can search online for better CD rates, or sometimes your financial advisor can do that for you.

    Good luck!

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  • 0 out of 1 people found this answer helpful

    CFP® Oakland, CA

    When my clients ask where to park money for specific needs in the next 1 - 3 years I suggest a hi-yield savings account. The best rates are with the on-line banks. If you go to the blog getrichslowly.org and click on deposits, they will have details on several banks that offer these accounts. The yields are not high but they are higher than most "brick & mortar" banks. In the current economic environment higher  yields are not possible unless you take on risk - not a good idea when you have a short-term goal.

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    Advisors offer free consultations to determine if you're a good fit for one another. Providing more information in the consultation request will help advisors have a better sense of what you're looking for. The advisor will contact you via email and set up a time to meet. Depending on the advisor, and your preferences, this could be an in-person or online meeting. You are under no obligation to engage them after meeting with them.
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