We are considering buying a house in next 3 to 4 years. I am putting away my wife's salary into the savings for next 3 years until we come up with 30% money in the bank to take care of down payment, closing fees and etc. Now the question is if I want that money to make me money right now while sitting in the bank for next 3 years, what is the best option to do so. Should I invest that money in mutual funds account or should I put that money into something else considering it's very low risk and beneficial. Any thoughts?


Imagine if you had put your funds into a diversified equity mutual fund 2 weeks ago. You might have lost ~15-20% of the value of your downpayment savings.

In a scenario where you need funds on the short term [and 3 years is short term for these purposes], you want to take on as little risk as possible. That means a savings account, or some form of a guaranteed savings bond, depending on your jurisdiction. Earning nothing over 3 years doesn't sound too bad compared with losing 20%.

  • Appreciated. However, in the next 3 to 4 years if I really wanted do something with the funds that would generated some cash flow over the period of those years, what's my best option. These funds are strictly my wife's salary going in and running the household on single salary as disciplined. Just wanted to understand when bank tells me why don't you do something with your money instead of sitting in savings account and I told them the purpose, they still insist invest. I am so confused at this point Mar 9 '20 at 19:52
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    Savings account, CD's, guaranteed but low return, better than nothing, and better than risking your down payment in the short term.
    – Hart CO
    Mar 9 '20 at 19:57
  • @Jitbhatt1283 What does that mean, "they insist"? Normally, it's up to you what you do with your money. You don't owe them an explanation.
    – glglgl
    Mar 9 '20 at 20:33
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    @Jitbhatt1283 Your bank will make money if you do what they recommend (probably through account management fees + possibly investment fees if you buy an affiliated mutual fund). Take their advice with a grain of salt. If a car salesman 'insists' you get leather seats in your car, does that mean you must do it? Mar 9 '20 at 20:45
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    @Jitbhatt1283, It is all a question of risk. Sure, you can put that money in something that could earn more, but it will -- by definition -- be riskier. As Grade Eh Bacon notes, you could have put it in the Dow 3 weeks back in the hopes of making more, but it obviously was riskier in that you would have lost a significant %. Your plan is to have that money in 3 years for a home down payment. If you want to put that 3 year plan at risk, then sure, you may be able to make more money. But if you want to be sure to have it in 3 years -- less risk -- you need to accept lesser returns. Mar 10 '20 at 16:19

Well, the U.S. overnight bank rate is 1.25% but that rate is not currently available to investors in short-term government bonds and is not expected to survive much longer in special-rate bank deposits.

Since a fund or a savings account is required for on-going deposits, then the likely choices are a 2.2 year duration investment-grade corporate-bond fund, a 2.6 year duration TIP fund, and a 0.57 year duration high-yield bond fund.

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