Savings bonds have final maturities of 30 years. You have to hold them for at least five years, or pay a three-month interest penalty upon redemption. With the savings bonds you buy three years from now, you'll have to hold them for five more years to avoid the penalty. That's eight years from today. This isn't the way to build a war chest for future long-term investments.
Mutual funds often provide a break from minimum account investments for individuals who are willing to commit to an automatic investment program. I'd suggest building your investment fund in a high-yield savings account over the next two to three years, until you reach the fund's minimum initial deposit, and then open an account with no-load mutual funds. A no-load mutual fund is one sold without a commission or sales charge assessed. You'll have some time over the next two years to learn about mutual funds and how you'd like to invest the money.
Some brokerage firms, such as Charles Schwab, will let you open an IRA account with no initial investment, but you have to commit to an automatic investment program of $100 per month. My sense is that you don't want to commit to the higher end of your planned savings on a contractual basis.
How you should invest the money depends on your goals for the investment. Investing for retirement gives you a longer investment horizon than investing for the down payment on a house. Even if you decide to put the money in a traditional or Roth IRA, keep some of your money outside of this account in an emergency fund.
Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.
Ask the adviserTo ask a question of Dr. Don, go to the "Ask the Experts" page and select one of these topics: "Financing a home," "Saving & Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.