|   Dear
Dr. Don,
My husband and I are saving money to buy a house. We are saving
about $2,000 a month and just started this year.
Can you recommend
what way we would earn the most interest on the money we are saving? Do all banks
have the same interest rate when it comes to savings accounts? -- Gloria  Dear
Gloria,
Your ability to save $2,000 a month toward a down payment is great.
That should get you homebound before you know it.
If you have
a pretty good idea how much money you're going to need as a down payment and when
you plan on being in your new home, you also know your investment horizon. I'm
going to assume that you have an investment horizon of two years. Bankrate's,
How
much house can you afford? calculator can help you determine how big a mortgage
you can carry given your financial picture. How much of a down
payment should you have? A 20 percent down payment lets you avoid private mortgage
insurance, but there are other ways to avoid PMI by using an 80-10-10
mortgage program or a self-insured mortgage. Low mortgage interest rates or rising
housing prices in your market can provide ample reasons not to wait until you
can raise a 20 percent down payment. Interest rates can vary
substantially by bank for the same type of account. You can shop rates nationally
or in your market using Bankrate's Best
Rates feature. The shorter your investment horizon, the
less willing you should be to invest in securities that can vary substantially
in price. That's why stocks aren't really appropriate for down payment savings.
Depending on your investment horizon, you can make an argument for bonds, but
the transaction costs and fees associated with this type of investment will pull
down your actual returns. I think that CDs make a good choice
for your down payment monies. You can invest the money each month out to your
planned investment horizon. If the bank you choose doesn't
have custom maturities, then you can either invest in the longest maturity that
falls inside your investment horizon or accumulate the money in a savings or money
market account and invest in a CD when a maturity is available that matches your
investment horizon. Be careful not to let maturing CDs roll
over, subjecting you to early-withdrawal penalties. | 
