We want to figure out the best place to park our money in the next 1-5 years to save for a bigger place.

Our escrow account that is linked to our mortgage is a checking account that has a 1% interest yield. I’m thinking this is the best option because we will have easy access to it (no fees for withdrawing unlike some savings accounts), with a yield similar to savings accounts.

The only potential drawback is that, as I understand it, the account isn’t technically ours—but I can’t see how the bank could take any of the excess money as long as we are paying on time. Are there any other drawbacks?

EDIT: Yes, it's in the US. And we have had excess in escrow before, but not much. Not sure if it was at the end of the year, but considering we're coming up on our closing date (in March) we'll watch to see what they do with that excess.

  • As an alternative to escrow, there are some savings account that yield very close to 1% APY – Nosrac Jan 20 '17 at 15:47
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    Or checking accounts that give 1%. – Mehrdad Jan 20 '17 at 20:53

The likely outcome of adding extra money to your escrow account is that the bank will send you a check for excess funds at the end of the year (or whenever your property tax and insurance payments are processed). Could you just redeposit that money immediately? Possibly. I bet most banks wouldn't care and would just follow the routine of clearing the excess from the account next time they process payments.

I've never received a 1099 for interest in an escrow account. It is possible that when you start earning enough interest that a 1099 is required by law ($10/year) that the bank gets a little more aggressive about pushing your money back to you.

I'm not sure why that hassle is any better than just opening up your average internet savings account (many don't have any of the fees you mentioned) and parking it there with a similar interest rate. You can deposit and withdraw using ACH transactions that post by the next business day. That said, unless they do start rejecting your money, there aren't a lot of downsides in your plan.

  • If you have the majority of that money now, you might want to look at Everbank. Currently they are paying 1.11% for the first year on a checking account. – Pete B. Jan 20 '17 at 17:44

You should talk to a financial fiduciary (make sure they are a fiduciary, not all planners are) about investing your money.

Even ultra safe investments such as treasury bonds will beat the 1% interest rate offered by your savings account (the yield on the 5 year treasury is currently around 2%).

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    Some people like to have their short term savings FDIC insured. – SlowTalk Jan 20 '17 at 19:58

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