Given a time frame of 5 years from today, what's the best type of account to store funds for a down payment on a house? 5 years seems like a long enough time frame to place in the market, albeit not at a 90/10 split favoring stocks. Yields are low right now, but so is inflation so on net am I losing anything by using as HYSA?
0-5 years, high yield savings or CD (optionally, CD ladder).
Even bonds are too risky and low yield over this kind of timeframe.
If you had 5-10 years, longer duration bonds (cash is essentially a zero-duration bond). If you had >10 years, maybe stocks. Stocks can lose value over periods of 20 years, though, so you probably wouldn't go 90:10 even for a 10 year period.
HYSA means you’re treading water. 5 years is dicey, depends on how badly you need the house. If you have a couple kids and NEED to be settled down, then keep it in HYSA. If you’re comfortable with some volatility and can afford to wait 6, 7, 8 years in worst case scenarios, then go all in on a total stock market fund in my opinions. I always bet on the government bailing out equity owners and devaluing the dollar, as long as US has military might.
As you get closer to buying a house you can allocate more and more to HYSA.
When I was saving for a down payment I wasn't comfortable keeping it anywhere else but FDIC insured savings or checking account. I don't think five years is long enough for the market.
I did make that money work for me in a low interest environment by using it to churn bank account bonuses.
If you are in the USA look into Series I savings bonds. They both earn interest and are protected from inflation. Minimum term ownership: 1 year. No early redemption penalty after 5 years. Earnings exempt from state and local taxes but subject to fed tax. The only drawback is you can only buy $10k of them per year per SSN. Much of my E-fund is I-bonds.
Not a bad idea if you are worried about runaway inflation, but otherwise yields aren't great. There aren't any i-bonds issued in the past decade that are currently earning over 2%, which is less than a savings account or money market currently yields.
Yea, I don’t keep I-bonds for the yield, I keep them for the inflation protection and tax advantage. High yield CDs are fine too but the interest is taxed.
