Savings Or Investments: The Best Way To Utilize Your 100K

Saving for a down payment on a house can be a challenging task, but there are several strategies that can help you reach your goal. Here are some key considerations and options to explore:

- Assess your financial situation: Determine your current financial standing, including income, expenses, debt, and credit score. This will help you understand how much house you can afford and how much down payment you need.

- Set clear savings goals: Calculate the target amount for your down payment, taking into account the purchase price of the house and the required percentage for the down payment.

- Create a savings plan: Consider using high-yield savings accounts, money market accounts, or certificates of deposit (CDs) to maximize the return on your savings while keeping your money relatively safe and accessible.

- Explore additional income sources: Side hustles, freelance work, or turning a hobby into a business can boost your savings.

- Reduce expenses: Cut back on unnecessary spending, negotiate lower rates on existing expenses, and focus on reducing any outstanding debt.

- Take advantage of assistance programs: Look into down payment assistance programs, especially if you're a first-time homebuyer. These programs can provide grants, low-interest loans, or other forms of financial support.

- Maintain an emergency fund: While saving for the down payment, ensure you have a separate emergency fund to cover unexpected expenses.

- Invest with caution: If your timeline for purchasing a house is more than five years away, consider investing a portion of your savings in low-cost index funds or target-date retirement funds. However, for shorter-term goals, it's generally recommended to stick with less volatile options like savings accounts or CDs.

- Seek professional advice: Consult a financial advisor or planner to help you make informed decisions based on your specific circumstances and goals.

Where to save for a high return

If you're looking for a high return on your savings, a high-yield savings account is a great option. These accounts offer much better interest rates than regular savings accounts, and they're a good low-risk option for your money.

• Capital One 360 Performance Savings Account: This account has an APY of 4.00% and doesn't charge a monthly maintenance fee or require a minimum balance to earn interest. It also offers in-person banking.
• EverBank Performance Savings: This account offers a high APY of 5.05% and imposes few fees or requirements. It doesn't have any physical branches outside of Florida, however.
• Marcus by Goldman Sachs High-Yield Online Savings Account: This account offers an attractive APY of 4.10% and has no maintenance fees or minimum deposit requirements. It also offers excellent customer service, although it doesn't offer a checking account.
• Varo Savings Account: This account offers an APY of 3.00% to 5.00% on balances up to $5,000 if you meet certain requirements. It also has automated savings tools and no fees or minimum balance requirements. However, you must open a Varo checking account to take advantage of the savings features.
• ETRADE Premium Savings Account: This account is a good option for investors, offering an APY of 4.25% on all balances and double the minimum FDIC insurance. It has few fees but doesn't offer access to ATMs.
• UFB Portfolio Savings: This account offers an APY of up to 4.57% on all balances and access to a virtual assistant and 24/7 customer service. However, it's limited to six free withdrawals per month, with a $10 fee for each additional withdrawal.
• American Express High Yield Savings Account: This account offers an APY of 4.00% and has no monthly maintenance fees or minimum balance requirements. It also has a well-regarded mobile app and good customer service. However, it doesn't offer check-writing privileges or ATM access.
• Laurel Road High Yield Savings: This account offers an APY of 4.50% and charges no monthly fees or minimum balances. It's the online arm of KeyBank, so it doesn't offer in-person banking or ATM access.
• Quontic Bank High Yield Savings: This account offers an APY of 4.25% on all deposits and has few fees, making it a good option for an emergency fund. However, it doesn't offer ATM fee reimbursements.
• SoFi Checking and Savings Account: This account offers a solid APY and access to thousands of ATMs nationwide. It also comes with a rewards checking account, but you'll need to meet certain requirements to earn the high yield.

When choosing a high-yield savings account, it's important to consider the interest rate, fees, digital features, customer satisfaction, and minimum deposit and balance requirements. It's also crucial to ensure that your deposits are FDIC-insured or NCUA-insured to protect your savings.

Automate your savings

Automating your savings is a great way to save without having to remember to transfer money manually and can help you achieve more with your money. Here are some ways to automate your savings:

Earmark Income for Investment

No amount of money is too small to save. Designate certain funds for savings and investments and identify an account to funnel these earnings into. Deposit the money into that account immediately and benefit from compound interest.

Regular Deposits

Set up automated deposits from your paycheck into a savings account. Ideally, you should aim to save enough to cover at least six months' worth of living expenses. If you already have a substantial amount in savings, consider investing in mutual funds or IRAs.

Split Your Direct Deposit

If your employer offers direct deposit, ask if they can split your paycheck into separate accounts. Put some money into your savings and the rest into your checking account. If they don't offer this, set up a recurring transfer on payday.

Favour Interest-Bearing Accounts

Do your research to find out which accounts bear the most interest at your financial institution. Keeping more money in your savings account and less in your checking account can result in larger gains over time.

Use a Cash-Back Credit Card

When spending, use a credit card that earns you cash back, but only buy what you can afford and pay it off regularly.

Household Accounts

Some banks offer incentives for consolidating your checking, savings, investment, insurance, and other accounts with them. These incentives could be in the form of cash or higher interest rates.

Know Your Bank's Rules

Some banks charge a fee after a certain number of transactions between accounts per month, or they may cap the amount that can be transferred within a specific period. Be aware of your bank's rules and plan accordingly.

Automate Bill Payments

Automating bill payments ensures you never have to worry about late fees again. Most companies allow you to set this up online or by calling their customer service line. Only keep enough money in your checking account to make the monthly payments to minimise the risk of someone getting your banking information.

Use Apps

There are many apps available that can help you automate your savings. For example, Acorns and Stash offer various financial solutions and account types, while Digit (now Oportun) analyses your spending patterns and saves money for you automatically.

Additional income sources

When it comes to additional income sources, there are several options to consider. Here are some strategies to boost your savings for a down payment:

• Side hustles and freelance work: Taking on a side hustle or freelance work can be a great way to increase your income. This could include freelancing, pet sitting, babysitting, or working for gig apps like Uber, Instacart, or Doordash. Turning your hobby into a source of income is also an option.
• Starting a small business: If you have a passion or skill that you can monetise, consider starting your own business. This could be anything from selling handmade crafts to offering consulting services in your area of expertise.
• Selling items: Look around your house for items you no longer need or use. You can sell them online or at a garage sale to earn some extra cash.
• Passive income opportunities: Explore passive income strategies that work for you. This could include investing in stocks, bonds, real estate, or other income-generating assets.
• Adjusting income tax withholding: Review your income tax withholding and make adjustments if necessary. This could result in a higher net income, which can help accelerate your savings.
• Down payment assistance programs: Look into down payment assistance programs offered by your local or state housing authority. These programs often provide grants, forgivable loans, or other forms of financial assistance to first-time homebuyers.
• Family support: Many first-time homebuyers receive financial support from their family members. If you have loved ones who are willing to help, be sure to properly document the funds through a gift letter for your lender.
• Reprioritising savings goals: Evaluate your current savings goals and consider reprioritising them. For example, you may temporarily reduce contributions to your retirement accounts (such as a 401(k) or IRA) to boost savings for your down payment. Just remember to resume full contributions once you've achieved your goal.
• Automating savings: Set up automated deposits or transfers from your income directly into your down payment savings account. This helps you save effortlessly without having to remember to transfer funds manually each time.
• Reducing expenses: Cut back on unnecessary expenses, such as subscription services, entertainment, and dining out. Also, look for opportunities to negotiate lower rates on recurring expenses like insurance, internet, or cell phone plans. Reducing outstanding debt can also free up more money for your down payment fund.

Down payment assistance programs

When saving for a down payment, it is important to explore down payment assistance programs that can provide financial support. These programs are especially common for first-time homebuyers and can be offered by government and bank-sponsored assistance, as well as by lenders and private organisations.

Down payment assistance comes in the form of grants, loans, and other programs. Grants are the most valuable form of assistance as they are considered gifts and do not need to be repaid. However, some organisations may label their programs as grants when they actually create a second lien on your home. Forgivable and deferred-payment loans are also options, with the former being forgiven after a certain number of years and the latter having no forgiveness but also no interest. Matched savings programs are another option, where a bank, government agency, or community organisation matches the amount deposited by the buyer.

To qualify for down payment assistance, there are usually requirements around credit score, income, and debt-to-income ratio. Many programs also require you to be a first-time homebuyer, take a class on home buying and finances, and live in the home for a certain number of years.

• HUD Good Neighbor Next Door Program
• NACA housing program
• Local homebuying programs (based on city, state, and county)
• NC 1st Home Advantage Down Payment (for first-time homebuyers or military veterans in North Carolina)
• Habitat for Humanity (for very low-income families)
• USDA Rural Development (for low and moderate-income families)

Reduce expenses

Reducing expenses is an important part of saving for a down payment on a house. Here are some strategies to cut back on spending:

• Track your spending habits: Understanding where your money is going is essential for identifying areas where you can cut back. Review your expenses over the past few months to get a clear picture of your spending habits and identify areas where you can reduce costs.
• Cancel unnecessary subscriptions: Evaluate your subscriptions and ask yourself if you really need them. Streaming services, cable TV, internet plans, and other monthly services can add up quickly. Identify the ones you can live without and cancel them to free up more money for your down payment fund.
• Reduce electricity use: Heating and cooling account for a significant portion of your electricity bill. Adjust your thermostat during winter and summer months, lower your water heater temperature, and only run the washer, dryer, and dishwasher with full loads to reduce electricity consumption.
• Prioritize sustainability: Adopt sustainable practices that can also save you money, such as installing energy-efficient light bulbs, taking public transportation, taking shorter showers, fixing leaky faucets, and choosing energy-efficient appliances.
• Reduce housing expenses: If you're renting, consider getting a roommate or moving to a cheaper place to reduce your rent burden. If you own your home, explore options like refinancing to get a lower interest rate, removing private mortgage insurance once you've built up enough equity, or even renting out your home to generate income.
• Consolidate debt and lower interest rates: Credit card debt can be a significant burden due to high-interest rates. Consider consolidating your debt through a debt consolidation loan or a debt management plan to lower your interest rates and make payments more manageable.
• Reduce insurance premiums: Shop around for home and car insurance to find lower rates. Look for companies that offer discounts for safe driving records, cheaper cars, or enhanced safety features. You can also consider raising your deductible to lower your premium.
• Cook at home: Preparing and eating meals at home is usually much cheaper than dining out or ordering takeout. Plan your meals for the week, cook in batches, and freeze leftovers for later to save money and reduce food waste.
• Shop with a list: Make a list before you go grocery shopping to avoid impulse buying. Group items by category or store layout to streamline your shopping trip and stick to your list to minimize unnecessary purchases.
• Order groceries online: Ordering groceries online can help you stick to your list and avoid impulse purchases. Many grocery sites also store your previous purchases, making it easier to reorder items and stay within your budget.
• Make your own household products: Making your own cleaning products, laundry detergent, and disinfectants can be more cost-effective than buying store-bought options. With a few basic ingredients like vinegar, baking soda, and Castille soap, you can make a variety of cleaning supplies.

Frequently asked questions