Series EE savings bonds aren't a bad choice. Since last February you've had to own them for at least a year prior to maturity, and you'll pay a three-month interest penalty if you redeem the bonds within the first five years of issuance. Still, the Series EE bond is currently paying an annualized yield of 2.61 percent, and that rate should be adjusted higher when the interest rate changes in May. The interest rate resets every six months, in May and November, and is based on 90 percent of the average market yield of the five-year Treasury note over the past six months. Even with the three-month interest penalty, you should earn close to 2 percent on a one-year investment in the Series EE savings bond. You can learn more about Series EE savings bonds on the Bureau of Public Debt's Web site.

Chasing yields above 2 percent increases your risk without buying a whole lot in added return. As the table above shows you, an investment with a 3 percent yield earns you an extra $560 dollars over what you would earn investing at 2 percent for a year. Once you move away from principal-protected investments like CDs, money market accounts, and savings bonds or U.S. Treasury securities, you'll take on some added risk. Is that risk worth an extra $560 of potential return? Most investors with a one-year investment horizon wouldn't think so.

You can shop rates for CDs either in your market or nationwide using Bankrate. You can currently earn about 2.20 percent annual percentage yield on a one-year CD from a bank using Bankrate's High Yield Savings search. The highest rates nationwide for FDIC-insured money market accounts would be very close to that, with Virtual Bank currently offering an annual percentage yield of 2.15 percent. Look at the current high rates for money market accounts on Bankrate.

Finally, if you're not sure when you'll need the money to buy your new house, then the flexibility of a money market account helps meet your liquidity needs.

-- Posted: Feb. 24, 2004