Investment Options When Saving For a Home

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Priced_Out_IT_Guy_IHB

Priced_Out_IT_Guy_IHB

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After the big rate cut by the Fed on Tuesday my ING Direct APR dropped to 3.65%.





Putting my savings into a "high yield" savings account doesn't make sense anymore when inflation is higher (CPI was 4.1% in December) than the return I can earn on lending someone else my money. This means that my savings at the end of the year will be worth less. Not to mention I have to pay income tax on that 3.65% (what a joke, I already paid 40% tax as a private contractor to earn the money).





So the question I have to ask now is, what safe investment vehicles are available for renters like myself who are saving for a house?
 
The circumstances you describe are exactly what Bernanke is trying to accomplish. People like yourself will now look to alternative investments and stimulate the economy. Also, it will motivate people to borrow more because the money they pay back will be worth less than the loan amount.
 
<p>ING has crappy rates. You can still beat inflation, although not on an after-tax basis, with some money markets:</p>

<p><a href="https://bank.countrywide.com/CWBRates.aspx?tab=mm">https://bank.countrywide.com/CWBRates.aspx?tab=mm</a></p>

<p>CFC had been offering over 5% on their savings link account but that has dropped to mid 4% range.</p>

<p>I have some dollars parked in good yielding bond funds. If bond yields go up though, you could end up making nothing... These funds have been yielding 5% or so and have been appreciating in terms of capital as the stock market has tanked. Here are two that I invest in:</p>

<p><a href="http://finance.yahoo.com/q?s=mbdfx">http://finance.yahoo.com/q?s=mbdfx</a></p>

<p><a href="http://finance.yahoo.com/q?s=wtibx">http://finance.yahoo.com/q?s=wtibx</a></p>

<p> </p>
 
well clearly you have to consider the borrower risk, individual credit rating, interest rate, and other factors. going after 15% interest will obviously run you a big risk, as it would with any investment. but what about "safer" borrowers at a rate of 6-7%?
 
IR,





Am I not helping to stimulate the economy by lending all of my savings to a bank who in turn lends it to individuals and businesses?





The borrowers who are going to benefit, not the savers.





More people will come out of the wood work to borrow my savings (that a bank is issuing) and I will be paid back less than the value of that which is being borrowed.
 
i'd rather give my money to my ex than to prosper.com... chance are very little either way i get it back...



i can not predict the market, so who knows about the funds... what time frame are we looking at ? but in the 5 - 10 year timeframe i would think a safe mutual fund will give you exactly that return 6%, maybe 7%
 
Price_Out_It_Guy,





You are right, your bank deposit should be benefiting the economy, but the FED wants to get money out of savings accounts an in to other asset classes which are arguably more productive. Really, when you look at what is going on, savings accounts are really a casualty in this. The FED is really aiming to stimulate borrowing by lowering rates below the rate of inflation. People with savings accounts get screwed, but the FED is less concerned about that than they are about a general economic slowdown.
 
Priced_Out_IT_Guy,



I am in much the same boat that you are. Same industry and we pay about the same in taxes.



Have you looked at tax-sheltered accounts? I've thought about parking some money in an IRA (about 10k) knowing that I can pull out that amount for my first home. (Note that this would be over and above what I am already saving for retirement.)



I know that 10k is a drop in the bucket compared to what is required to get a decent sized home in the Irvine area, but every bit helps. Plus, since you the contributions are tax-free, I figure I could almost double what I would have saved if I had placed the money in a mutual fund or some sort of savings.



Does anyone have any info on how to do this? I haven't come across anything that says that I would have to repay the amount I pull out, like I would a 401(k).
 
keep in mind when you pull money out of your IRA to fund a home purchase, the withdrawal is penalty-free, not tax-free. so you avoid the 10% penalty for an early withdrawal, but you will need to still pay taxes on the $10k if you had initially deducted the ira contribution. if you have a roth ira, you can pull out *contributions* at any time tax-free (since you already paid taxes on that money) and penalty-free.
 
mmmmhhh maybe my house and my low interest rate are not that bad after all ??? the higher the inflation the better... actually every year i owe the money it's less without paying a dime to the principle... thanks to inflation... the write off on top off that...



i'm just saying... if you so afraid of loosing your money anywhere else then a savings account... you might as well buy a house
 
<p>Just remember if you pull anything out of Roth before the five-year waiting period is over, you will get a penalty on any earnings distributed. It doesn't matter if you are using to fund a first-time home purchase or not...</p>

<p>Also, IRA withdrawals to fund a first-time home purchase have a lifetime limit of $10K... Any withdrawals/distributions related to home purchase above that amount would likely be characterized as non-qualified and subject to the 10% penalty.</p>
 
POIT, if you really only are comfortable with savings accounts, Emigrant Direct is currently paying 4.55%. I don't know how long that will last though.
 
<p>PFF Bank has an internet savings account now offering 4.75%:</p>

<p><a href="https://www.pffbank.com/personal/savings/esavings.htm">https://www.pffbank.com/personal/savings/esavings.htm</a></p>
 
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