Other types of investments
Outside of the various savings and checking accounts offered by your financial institution, there are other methods of saving money for buyers who want higher-yield investments.
Treasury bonds and Treasury bills
A Treasury bond, or savings bond, is a certificate purchased from the U.S. Treasury, which you keep for a certain number of years as it accrues interest. Once it matures, you can cash it in, getting back your initial investment, plus interest.
Bonds can be purchased at your bank, or you can use the Treasury’s online service, TreasuryDirect. Savings bonds are a safe, albeit slow, way to save; based on when you purchase them, they don’t mature for 20 to 30 years. As far as returns go, you’re guaranteed to get back the original value of the bond, and, depending on when you purchased it, the accrued interest.
Treasury bills, or T-bills, are similar but have much shorter terms, with a max of 52 weeks. They are usually sold at a discount, which is known as par value, or face value. When they mature, the difference between the current value and par value is your interest.
Investors are often attracted to T-bills because while the interest accrued on them is taxed at a federal level, they are exempt from state and local taxes. Like savings bonds, your return can vary based on when you buy and the terms of the bill.
401(k)
A 401(k) is an employer-supported retirement account in which you put a percentage of your paycheck into diversified investments. The minimum amount you can contribute is usually about 3%, and employers will often match your contribution up to a certain amount. 401(k)s are considered a relatively safe investment, and they also offer some tax benefits.
While you can’t withdraw from a 401(k) until age 59 and six months (at least not without a huge penalty), you can borrow against your 401(k) to buy a home. Plans usually have a limit of 50% of the value of the account, and you have to pay it back within a certain amount of time.
The interest you pay for a 401(k) loan is usually much less than for a consumer loan, but buyers should keep in mind that it also adds another monthly payment, which can affect debt-to-income ratios when qualifying for a mortgage.
IRAs
An IRA (individual retirement account) is intended as a retirement savings account, allowing you to invest money while either deferring taxes (such as with a traditional IRA) or paying the taxes as you save and being able to withdraw the money tax-free at retirement (such as with a Roth IRA).
IRAs grow by way of investments within the account, which generates compounded interest as those investments earn dividends. Depending on the type of IRA you choose, you can contribute up to a certain amount each year, and it becomes accessible at age 59 and six months.
Like a 401(k), you can borrow against your IRA for a home purchase, but many financial experts, Inman included, are against it.
Some buyers might also be tempted to cash out their retirement accounts altogether, taking the penalty in order to buy a house, but this is often a big mistake.
“Initially, it might seem like you are getting a good chunk of change,” says Almanzar, “but then you’re hit with penalties and taxes that, depending on the type of investment account, could cost you up to 40% of your money.”
Fintech platforms
Fintech, or financial technology, relates to all the new tech options out there that help consumers and businesses manage their money. This can include things like Bitcoin; digital shopping programs that offer small, immediate loans rather than using a credit card; mobile stock trading; and virtual lending institutions.
Fintech investing and saving platforms such as Betterment and Acorns offer apps that can be downloaded to phones or computers for quick, easy access, essentially cutting out the “middle person” of traditional financial advisors. These are sometimes called robo-advisors, as portfolios are created and managed via automated data.
Novice investors tend to like these kinds of platforms, as they usually require a very small initial deposit (Betterment requires a deposit of only $10 to get started), and their fees tend to be much lower than a brick-and-mortar investment firm. You also don’t usually have to worry about penalties when you decide to move money to different accounts or withdraw it.
The downside to this kind of automated investing is that you don’t get a customized investment plan, nor do you get the human interaction that goes with that. And the money you invest isn’t guaranteed to grow; it all depends on how you invest it and the current rates of return.
Stocks
Do you like to gamble? If so, investing in stocks might appeal to you.
The stock market involves the practice of buying and selling shares of publicly owned companies. You buy stock, preferably when the company is new and shares are inexpensive, then sell it down the line when the company’s stock goes up in value.
While buying stock and selling it for a big return does happen, big losses also happen, and investing your house savings fund into the stock market isn’t usually recommended.
“You never know what the market will do in the short term,” says Inman. “You could easily lose 20% to 30% of your investment.” He adds that while we can’t know what the stock market will do when trying to do quick-turnaround investments, it is possible to estimate returns over the long term, so holding out and not selling too soon provides a higher chance of a decent return.
Other tips and advice from the experts
Diversifying
There’s something to be said for the old adage of not putting all of your eggs in one basket. Diversifying your savings by putting a certain amount in (for example) a high-yield savings account while also setting up a money market account and dipping a pinky toe into the stock market, can help balance your overall savings plan.
A diversified investment portfolio through a financial planner is also a good way to save, as you’ll be somewhat protected from any short-term financial fallout during economic highs and lows. Keep in mind, however, that when you diversify, all or part of your money might not be available to you when you need it.
You can also look at diversifying your income, whether you pick up a side job, start your own small business, or even rent space in your house to generate some additional earnings.
How to balance investing while saving for a home
Investing while saving for a home can be a smart strategy, but it requires careful planning. The key is balancing risk and liquidity — ensuring your money grows without jeopardizing your homebuying timeline.
If your home purchase is more than five years away, you might consider moderate-risk investments like a diversified mix of stocks and bonds through ETFs or index funds. These can offer higher returns than traditional savings accounts but still carry some volatility.
For shorter timelines (three to five years), conservative investments like high-yield bonds, money market funds, or CDs may be better choices. These offer more stability while still providing some growth potential.
A good rule of thumb is to keep the bulk of your savings in low-risk, easily accessible accounts while allocating a smaller portion to investments that can potentially outpace inflation. If market conditions shift and your investments take a dip, having a solid cash reserve ensures you stay on track with your home purchase goals.
Psychological tricks to stay motivated while saving
Saving for a home can feel like a long, uphill journey, but using a few psychological strategies can help you stay on track and make the process more rewarding.
- Set Mini-Milestones – Instead of focusing only on the full down payment amount, break it into smaller goals (e.g., saving $5,000 increments). Celebrating these wins keeps you motivated.
- Visualize Your Future Home – Create a vision board or save photos of homes in your budget. This keeps your goal tangible and reminds you why you’re making sacrifices.
- Name Your Savings Account – Many banks let you rename accounts. Calling it “Future Home Fund” or “Dream House Savings” can make it feel more real and purposeful.
- Automate Your Savings – Setting up automatic transfers to your savings account eliminates the temptation to spend and reinforces the habit of saving.
- Use the 24-Hour Rule for Big Purchases – Before making an impulse buy, wait 24 hours. Often, you’ll find you don’t need it — and that money can go toward your home fund instead.
By making saving feel more like a game than a chore, you’ll stay engaged and committed to reaching your homeownership goal.
Find home-buying programs designed to help you
If you’ve been saving and still don’t have quite enough money, don’t give up. Almanzar reminds buyers that there are programs out there, especially for first-time homebuyers, that can offer loans or grants to help pay for closing costs.
“Here in New Mexico, there are some really amazing programs, depending on the client’s circumstances and phase of life,” she says. She also suggests that buyers who aren’t able to save a lot seek out loan programs that require smaller down payments, such as FHA loans, which require a minimum of only 3.5% down.
Inman adds that people need to keep their eye on the big picture when it comes to saving.
“People get caught up on this treadmill of trying to figure out how to make more money, rather than just saving traditionally,” he says. “They’re looking for a quick fix when in reality, if they spend 30 more minutes a week on their finances, they could probably learn how to save more.”
Finding the right way to save for a house definitely depends on your individual situation, and talking to someone who has expertise in the field is always a good place to start. A financial advisor, along with a top real estate agent, can help you decide on the best investments to save for a house and give you insight into how to make your money grow.
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