• Investing your down-payment savings is only a smart move if you’re not planning to buy a house in the next two years. 
  • If you’re planning to buy in the next two to five years, you might want to consider CDs, or certificates of deposits, as a low-risk investment that could earn more than the typical high-yield savings account. 
  • For anyone waiting five years or more to buy, investing in stocks and bonds may be a good choice, but only with a small portion of your savings, caution financial planners. 
  • Read more personal finance coverage. 

Saving for a down payment on a house is no easy feat.

In some markets, saving up a full 20% down payment can be a huge sum. For big, long-term goals like this, investing might seem like an ideal way to make money grow quickly.  
But, investing poses a big problem: risk. Investing your down payment fund isn’t always right, especially if you’re planning to buy in the next few years. Unlike for other long-term goals like retirement, investing isn’t always the right move. Unlike retirement savings, your home down payment savings won’t have decades to recover from short-term market losses. 
Whether or not investing your down payment savings is right for you mainly depends on when you want to buy.  Here’s how to tell if you should invest your down payment savings, and how to do it.

If you’re planning to buy in the next 2 years, don’t invest

Marcy Keckler, Ameriprise’s vice president of financial advice strategy, previously told Business Insider that your buying time frame determines where you should save. “If someone’s goal is just 18 to 24 months away, consider saving in something that’s really liquid and really low risk,” she said. She suggests a high-yield savings account or money market account — a cash account similar to high-yield savings which keeps money liquid and earns interest — to save for a down payment. 

“When you look into the four- or five-year time frame, you certainly might want to get a little more return on the money you already have saved,” Keckler said. But, for anyone wanting to buy in the next two years, a high-yield savings account might be best.

If you know you won’t buy for 2 to 5 years, consider a CD

For anyone who’s not looking to buy in the next two years, low-risk investments are ideal. Even if they don’t yield the highest returns available, it’s better to play it safe with down payment savings. 
Keckler suggests opting for lower-risk investments for down payments like CDs, or certificates of deposits. With CDs, money is in an account for a pre-determined term, and generally earns a slightly higher interest rate than it would in a high-yield savings or money market account. While taking money out before the CD ends will incur a penalty, the interest rate won’t change, no matter what happens to the prime rate. When interest rates are falling, CDs could lock in that higher interest rate. 

CDs are great for anyone who has more than two years before they buy. Often, the longer your money is committed, the higher interest rate you will earn. Terms often range from one year to five years. 

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