Saving for Project Home

Over the last few days, I’ve been reading Home Buying for Dummies and researching different options for accounts I can use for my Project Home fund.

Photo on 4-4-15 at 1.25 PM #3Some things I’ve learned:

  1. Contrary to what you’ll hear from many real estate agents and some current homeowners, buying a home isn’t always the best option for every person at every point in life. A few good reasons not to buy a home are: (a) not truly being able to afford it; (b) buying because it’s the adult thing to do; and (c) a chance that you’ll soon move or want to upgrade.
  2. Houses are a ton of work — lots of time and money go into maintenance, upkeep, and fixing things that are broken in a newly purchased house. Your grass needs to be watered in the spring, and your icy porch steps need to be salted in the winter. If the roof caves in, it’s your responsibility to fix it. So you have to make sure you’re prepared to invest time and money into home owning. The FHA 203K program will allow you to finance up to $35,000 in upgrades or repairs, so that’s a significant help when it comes to money, but time is another hugely important consideration.I’m someone who took nearly a year just to hang one picture frame up in my apartment, and that was long before I had any kids.

    The reason that matters is: I say that homemaking is something I care about and want to prioritize, but this has never been true. I’m not a great decorator, and I hate cleaning. I’m not handy at all. I didn’t even know the air filter in my apartment had to be changed every three months until Vince pointed it out to me (I hadn’t changed it in three years #oops). If you’re going to make the investment of money then you also have to make the investment of time. This time investment is a huge turnoff for me, as someone who prioritizes other aspects of my life more than cleaning and decorating.

  3. There are many different options for down payment savings funds: money market accounts, certificates of deposit (CDs), and regular savings accounts. I analyzed these options and found the best bang for my buck, which I’ll explain in this post.

Pretty much right off the bat, it was easy to quickly write off CDs. With low interest rates and not a lot of flexibility on withdrawals, this type of account wasn’t going to meet my needs. I was looking for something that would accrue the most interest over the shortest period of time. Most CDs I found had interest rates even lower than regular savings accounts (and in this case, low interest rates are a bad thing). I also didn’t want to lock my money up for any set amount of time because I don’t know if I’ll be ready to buy in three months, six months, a year, or never.

For many of the same reasons, I also didn’t spend a lot of time looking at money market accounts. The bank offering a money market account with the highest annual percentage yield (APY) I could find was Ally Bank with an APY of 0.85% — even lower than a savings account with the same bank (0.99% APY).

Surprisingly, I found the highest interest rates on regular savings accounts — which was great news since these also offer the greatest flexibility when it comes to withdrawals. Online savings accounts proved to have higher interest rates, likely because these companies are saving on the cost of maintaining a physical location.

Here are some of the best online savings accounts I found (ranked from highest to lowest APY):

  • Dollar Bank Federal Savings Bank: 1.6% APY
  • GE Capital Bank: 1.05% APY
  • MySavingsDirect: 1.05% APY
  • Barclays: 1% APY
  • IGOBanking.com: 1% APY
  • Ally Bank: 0.99% APY

Early in my search, I also considered SmartyPig, which touts “one of the most competitive interest rates in the country.” It looks like an awesome tool, and if you’re comparing it to savings accounts at banks with physical branches, 0.75% APY is incredibly competitive (I found that my current savings account at Bank of America only offers 0.01% APY — which is pretty shitty now that I’ve done my research).

Once I had my top choices, I looked more closely at the requirements of account-holding, the financial health of each institution, and customer reviews. I took Dollar Bank Federal Savings Bank off my list because, although there’s no minimum deposit or monthly fee, it would’ve required me to get a new checking account (and actually use it). This made the cost too high for me because I want a bank with a physical branch in my area (otherwise I might’ve just stuck with Chase when I moved to DC).

I looked at MySavingsDirect but couldn’t find many reviews and found that the bank had a financial health rating of C+. GE Capital Bank, however, offered the same APY and had a financial health rating of A+ — a stellar score. But there were some red flags with GE Capital Bank, too. Many reviewers complained about being declined despite great credit and high proposed deposit amounts. People also expressed HIGH dissatisfaction with the customer service, and some pointed out that the bank couldn’t meet their needs because it wasn’t a one-stop shop. For me, lack of additional services wasn’t a dealbreaker because I wasn’t looking to completely uproot. I just want a better place to store a chunk of money for a short period of time — like about six months.

IGOBanking.com and Barclays also both looked solid with 1% APYs and respective A and A+ ratings on their financial health. Two great options for high interest savings accounts with no fees and no minimums.

Because I’d also read a lot of great reviews about Ally Bank, I did additional research on this bank, even though the APY was slightly lower than my three other amazing options. I found that Ally also had an A+ rating on its financial health and stellar reviews.

Ultimately, I trusted the opinion of GOBankingRates.com in choosing GE Capital Bank for my online savings account. Most of the bad reviews complained about being declined for an account, so I figured I might as well give it a shot. And I was approved!

I stored a large chunk of cash in my new savings account and plan to make deposits on a monthly basis.

One last tidbit: I’m using Quizzle to help me get my financial house in order, to quote HBFD. It offers a free credit rating and analysis as well as tips to improve your credit score. I found that my credit score was in the high 600s, which isn’t bad but also isn’t perfect. I need to work on paying my bills on time (rather than waiting months and months and threats to cut off my service before I just give Verizon their money) and keeping my utilization under 30%, which I was probably better at pre-December 2014. Viewing a detailed credit report also motivated me to finally consolidate my loans from the Department of Education. Because I work in the nonprofit sector, I’ll be eligible for some loan forgiveness through the Public Service Loan Forgiveness (PSLF) Program after 10 years of payments.

A decade used to feel like a really long time, but when I think about it in terms of my probable lifespan, it’s really not that long at all. Ten years from now, I’ll only be 35. I’ll still have my whole life ahead of me.

I’m really enjoying this process because, even if I decide in the end that I don’t want to buy a home in DC, I’m feeling more financially healthy than ever before in my life.

The most important lessons I’ve learned:

  1. Buying is not always the right decision.
  2. But saving is.
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