Saving for a home down payment can feel challenging, given current real estate prices. Using the right assets can help give your balance a lift.

When you actually need the money is the “biggest driving factor,” said Ryan Dennehy, principal and financial advisor at California Financial Advisors in San Ramon, California. The firm ranked No. 13 on the 2024 CNBC FA 100 list.

“Do you need the money six months from now, or do you need the money six years from now?” he said.

That timing matters because financial advisors generally recommend keeping money for short-term goals out of the market. There can be more flexibility for intermediate-term goals of three to five years, but it’s still wise to prioritize protecting your balance. After all, you don’t want a bad day in the market to impact your ability to put in an offer on a home.

But that doesn’t mean your down payment funds need to sit in a basic savings account, either.

Here’s how to figure out how much money you might need, and some of the options for safely growing your balance:

How much you need for a down payment

Understanding how much money you might need can help you better gauge your timeline and the appropriate assets for your down payment.

As of the second quarter of the year, the median sales price of U.S. homes is $412,300, according to the U.S. Census via the Federal Reserve. That is down from $426,800 in the first quarter, and from the peak-high of $442,600 in the fourth quarter of 2022, the Fed reports.

So, for example, if a homebuyer is looking to put a 20% down payment on a $400,000 house, they might need to save about $80,000, said certified financial planner Shaun Williams, private wealth advisor and partner at Paragon Capital Management in Denver. The firm ranks No. 38 on the FA 100.

Of course, a 20% down payment may be traditional, but it’s not mandatory. Some loans require as little as 5%, 3% or no down payment at all. Down payment assistance programs can also cover some of the tab.

In 2023, the average down payment was around 15%, with first-time buyers typically putting down closer to 8% and repeat buyers putting down around 19%, according to the National Association of Realtors.

Just be aware that if you put down less than 20%, the lender may require you to buy private mortgage insurance. PMI can cost anywhere from 0.5% to 1.5% of the loan amount per year, depending on factors like your credit score and down payment, according to The Mortgage Reports.

4 ways to grow your down payment savings

Here are some options that advisors say are worth considering, depending on when you hope to buy a home, how much you already have saved and how accessible you need the cash to be:

1. CDs

A certificate of deposit lets you “lock in” a fixed interest rate for a period of time, Dennehy said. You can buy a CD through a bank or a brokerage account. 

Term lengths for CDs can span from months to years. The annual percentage yield will depend on factors like the interest rate at the time, the term of the CD and the size of deposits.

If you need to access the funds before the CD matures, a bank may charge a penalty wiping out some of the interest earned, Dennehy said. Some banks offer penalty-free CD options, too.

With brokered CDs, there’s often no penalty charge for early withdrawal, but you are subject to whatever the CD is valued at on the secondary market, he said. You may also face sales fees.

As of Oct. 23, the top 1% one-year CDs earn around 5.22% APY while the national average rate is 3.81%, per DepositAccounts.com.

2. Treasury bills

Backed by the U.S. government, Treasury bills are an asset that give you a guaranteed return, with terms that can range from four to 52 weeks. The asset could be less liquid, depending on where you purchase.

T-bills currently have yields well above 4%.

You can purchase a short-term or a long-term Treasury depending on your goal timeline, said Dennehy.

Treasury interest is subject to federal taxes, but not state or local income tax. Stacked against CD rates, Treasurys can offer a “comparable rate with less of a tax impact,” said CFP Jeffrey Hanson, a partner at Traphagen Financial Group in Oradell, New Jersey. The firm ranks No. 9 on the FA 100.

High yield savings accounts [are] great if you’re going to be buying in the next year.

private wealth advisor and partner at Paragon Capital Management in Denver, Colorado

3. High-yield savings accounts

A high-yield savings account earns a higher-than-average interest rate compared with traditional savings accounts, helping your money grow faster.

The top 1% average for high-yield accounts is 4.64% as of Oct. 23, per DepositAccounts.com. To compare, the national average for savings accounts is 0.50%.

Their ease of access makes a HYSA especially suitable as you get close to starting your home search.

“High-yield savings accounts [are] great if you’re going to be buying in the next year,” Williams said.

4. Money market funds

A money market fund generally has a slightly higher yield than a HYSA, said Dennehy. Some of the highest-yielding retail money market funds are nearly 5% as of Oct. 23, according to Crane Data.

But a HYSA is typically insured by the Federal Deposit Insurance Corp. A money market fund is not, said Dennehy.

Still, money market funds are considered low risk and are intended not to lose value, according to Vanguard. They may be eligible for $500,000 coverage under the Securities Investor Protection Corp., or SIPC, when held in a bank account, Vanguard notes.