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So some background. I recently sold my first house to move for a new job. The housing market is much hotter here than where I was. I am looking for a house, but am comfortable in my current apartment, and have no desire to rush into buying anything. I am content waiting for a house to really "grab" me before I buy. At the very longest, I expect the wait could take 1 year.

With that said, I have the proceeds from the sale of the first house sitting in a simple savings account right now. I know I am not maximizing its growth in this way, but if a house that I love does come up, I expect to have no more than 1 week to move on buying, so the money needs to be very accessible.

So my question is: What is the best way to maximize growth on this sum of money, given that the time frame for investment would be short (no more than 1 year), it needs to be extremely liquid, and it needs to be a very safe investment since I am making concrete plans based on the amount. Is a simple savings account the best option I have right now?

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    Can you edit and add country tag – Dheer Jul 15 '19 at 16:40
  • The only very safe investment (US) is a high yield money market account, current approaching 2.50% – Bob Baerker Jul 15 '19 at 16:44
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You asked,

What is the best way to maximize growth on this sum of money

And you gave some constraints:

given that the time frame for investment would be short (no more than 1 year), it needs to be extremely liquid, and it needs to be a very safe investment since I am making concrete plans based on the amount. Is a simple savings account the best option I have right now?

Short but indeterminate time frame, liquid, and low risk all point to a money market account. Essentially, money market accounts are like savings accounts, but typically have minimum balance requirements and higher interest yields. Rates are typically not as high as on a time deposit account (i.e. a CD) but you have the advantage of not being locked in to a fixed time frame. In the US, right now, it's typical to see rates between 1.5 and 2.5% depending on your balance and which institution you choose. Which raises a good point - shop around, there can be significant differences from bank to bank.

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  • My go-to bank for savings accounts is Ally. The interest rate isn't the absolute highest, but it's high enough, and I like the web site. There are many others, though. – RonJohn Jul 15 '19 at 17:13
  • On $25k, looks like Ally is 2.20 right now. That's definitely not bad. It does pay to shop. If I look just at MM rates at institutions with a branch along my commute, I see everything from 0.25% (zero point two five, not a typo!) to 2.02%. Almost a tenfold difference! – dwizum Jul 15 '19 at 17:20
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    By way of comparison, you'd be hard pressed to find a 1 year CD for much above 2.8% - so the cost of not being locked into such an instrument for a year is pretty small compared to the money market option. Good answer! – BrianH Jul 16 '19 at 2:30
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    @dwizum: Interestingly, I don't see 2.2% at Ally. I see 2.1% in savings, and 2.3% in a no-penalty CD (for 25k and up). – Ben Voigt Jul 16 '19 at 5:48
  • @BenVoigt I'm looking at data from a benchmarking vendor, not actual, live, current rates. Maybe I should have stipulated. It might be a little stale or it might not translate directly to the way they list products in retail. – dwizum Jul 16 '19 at 12:23
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You are trying to protect the value, so investing in stocks is out. You also want the investment to be liquid, so getting a 1 year CD might not work because if you cash it in early there will be a penalty.

In the United States there are options:

  • Bank money market accounts. They pay more than regular savings accounts. They may come with size limits, so you may have to spread it across multiple banks. Make sure they are FDIC insured.
  • Some CDs do allow you to end them early, but they don't pay as well. The lower rate is the price of flexibility.
  • You could setup a ladder of short term CD's, but that might not meet the rates offered through money market accounts.
  • T-bills purchased through treasury direct. The shortest Treasury Bill is 4 weeks, but you can set it up to roll over every 4 weeks, and that can be cancelled as long as you do so a few days before the next auction.

You mention liquidity

I expect to have no more than 1 week to move on buying, so the money needs to be very accessible.

The t-bills can be staggered so that you rollover 1/4 of the money every week. In all likelihood there will be several weeks between finding a house and the settlement date, a month or two is not unusual especially when the home inspection, appraisal, and loan approval are required. The 1/4 rollover will allow you to pull money out for a quick deposit, while letting the rest complete their 4 week cycle.

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