Saving for a home? 3 smart places to keep your down payment

With interest rates at 22-year highs and housing inventory near record-lows, it's a challenging time to buy a home. Home prices are also much higher than they were a few years ago, adding to difficulties buyers face in the current market. So, rather than taking out a mortgage loan with a rate near 7%, many potential buyers are opting to wait out the market instead while putting away money for a down payment. 

No matter what type of housing market we're in, saving for a down payment on a home is an exciting — and necessary — step toward homeownership. However, it's crucial to know where to keep your hard-earned money to ensure it grows steadily and remains accessible. 

The good news is that you have a handful of good options for where to keep your down payment savings. And with a little research, it's possible to find the best fit for your financial goals.

Ready to get started? Discover some of the top high-yield savings account rates right now and start building your savings!

3 smart places to keep your down payment

Whether you plan to buy a home in the next few months or the next few years, here are a few smart places to keep the money for your down payment.

Grow your money in a high-yield savings account

High-yield savings accounts are one of the most straightforward and flexible options for keeping your down payment funds secure. These accounts are typically offered by banks and credit unions and come with higher interest rates compared to traditional savings accounts at brick-and-mortar banks. 

While regular savings accounts currently offer an average interest rate of just 0.42%, many high-yield savings accounts currently offer 4.5% to 5% or more on your money. With interest rates this high, the money you put away for a down payment on a home can grow more quickly over time. You can also withdraw your money at any time without penalties, making it an ideal account option if you need easy access to your funds during the home buying process.

Learn how you can maximize your down payment right now with a high-yield savings account.

Keep your down payment in a certificate of deposit

If you aren't planning to buy a home in the near future, a certificate of deposit (CD) can also be a safe and reliable option to consider. With a CD, you deposit a fixed sum of money in a CD for a predetermined period, which can range from several months to several years, in return for higher-than-average APYs on your money. 

Unlike high-yield savings accounts, which offer variable rates of interest, CDs offer a fixed interest rate for the entire term, shielding your savings from market fluctuations. This guarantees that the rate you get initially will be the interest rate you earn throughout the life of the CD. Right now, there are numerous CDs offering 5% or more on your deposit. And, the interest compounds over time, adding even more to your down payment.

However, most CD accounts also come with a penalty if you withdraw your funds before the term ends, which is less than ideal if you're actively looking for a home. Still, this type of account could still be a good option if you aren't ready to buy right now and want to maximize what you earn on your down payment in the interim. 

Explore how the top CD rates and terms could benefit you now.

Put your down payment in a money market account

Money market accounts (MMAs) are another viable option for stashing your down payment savings. MMAs work similarly to high-yield savings accounts, but may offer check-writing capabilities and typically have minimum deposit requirements to meet. In return, you're typically offered better interest rates on MMAs compared to standard savings accounts, but these rates may be slightly lower than high-yield savings accounts. 

While rates vary by financial institution, many money market accounts offer rates of 5% or slightly higher right now. Plus, the ability to write checks makes this option convenient for larger home purchase expenses — like your down payment or other related costs.

The main downside is that you typically have to meet a minimum balance requirement in order to receive the highest APY. So if you're just starting to save for a down payment or don't have much to deposit, a high-yield savings account without fees or minimum deposit requirements could make more sense.

The bottom line

Deciding where to keep your money for a down payment requires careful consideration. High-yield savings accounts offer a good balance of accessibility and growth potential, making them an excellent choice for most people. Money market accounts also provide competitive interest rates, but typically have a few more restrictions, while CDs offer stable returns for those who don't need immediate access to funds. Ultimately, what option works best for you depends on when you'll need access to your down payment funds — and what your goals are for your money.