For many aspiring homeowners, saving enough to cover the down payment and closing costs is the biggest hurdle to homeownership. It can feel overwhelming, a goal that takes considerable time and effort to accomplish.
It isn't surprising, considering that the national median home price in the last quarter of 2025 hit a record high of $365,000, according to real estate data provider ATTOM. If you're aiming for the conventional 20 percent down payment, that comes to $73,000.
Even if you're not putting 20 percent down, we're still talking about saving thousands of dollars. This is why it's also crucial to know where to keep your funds while working toward this huge financial goal. You'll want your cash to be relatively accessible but also earn a competitive interest rate so your savings can grow as quickly as possible.
If you're a prospective buyer trying to figure out the best places to keep your money while saving for a down payment, here are some great options to consider.
High-Yield Savings Account
Best for: Buyers who want competitive interest rates and the flexibility to withdraw their money anytime they need it for a down payment.
Possible downsides:
- Your money remains easily accessible, which could tempt you to use it for other purposes.
- The annual percentage yield (APY) on HYSAs is variable rather than fixed, which means the rate can fluctuate at any time, often in response to Federal Reserve decisions.
- If you value the convenience and customer service of a brick-and-mortar bank, you might struggle with this setup, since most HYSAs are offered by online-only banks.
A high-yield savings account (HYSA) is one of the best options for saving for a down payment. It earns its name by offering a higher APY than standard savings accounts. Some of the best online banks and credit unions offer HYSAs with interest rates more than 10 times the national average.
If you need to access your money early for a down payment or a deposit, HYSAs also let you withdraw from your savings at any time without penalty, although some financial institutions limit the number of withdrawals you can make per month. If you're planning to buy a home within 6 to 12 months, a HYSA is your best bet. It's an easy way to grow your house fund faster than you would with a regular savings account.
Certificate of Deposit
Best for: Buyers who want to lock in today's higher interest rates but are still a long way from buying a home.
Possible downsides:
- Your money is less accessible, so if you withdraw from your account before your certificate of deposit matures, you'll most likely have to pay an early withdrawal penalty.
- A HYSA's rate can rise over time, while a CD stays at the rate you locked in.
A certificate of deposit, also called a CD for short, is another great option if you're looking for a safe place to store your down payment savings. Like HYSAs, CDs tend to earn higher returns than traditional savings accounts, and their rate is fixed. As of March 2026, the best CDs on the market offer APYs as high as 4.10 percent.
If you're 12 to 24 months (or more) away from buying your dream home, choosing a CD may make more sense. You could lock in today's higher interest rates and earn a bit while you continue saving for a down payment, as long as you leave your money in your account for the duration of the CD term.
Here's where the biggest downside comes in: your money is less accessible in a CD. It's tied up for a specific period, whether six months or a year, so if you withdraw before your CD matures, you'll most likely pay an early withdrawal penalty. If you're looking to buy a home soon, a CD isn't your best option. Penalties vary by institution and CD type, but you can expect to lose months' worth of interest if you break a CD early, often negating the gains you picked up by choosing the CD in the first place.
Money Market Account
Best for: Buyers who want one account for both spending and saving toward a down payment.
Possible downsides:
- You might mix up your spending money with your savings, which could be a big drawback if you're trying to save a large sum.
A money market account (MMA) might suit you better if you want a deposit account that lets you spend money while setting aside savings for a down payment. Some of the best MMAs from banks or credit unions offer competitive variable interest rates in line with what you'd earn from a HYSA or short-term CD. The balance you keep in your account earns interest, and you also get perks like a debit card, ATM access, and even check-writing. This means you can withdraw your funds at any time, giving you easy access to your money.
First-Time Home Buyer Savings Account
Best for: First-time home buyers who want to save for a down payment and take advantage of state tax deductions.
Possible downsides:
- You may have to pay taxes, along with potential penalties, if you use the funds for non-approved home-buying expenses.
- There is usually a maximum annual contribution limit, and possibly a lifetime cap, both of which vary depending on where you live.
A first-time home buyer savings account, or FHSA, is a special type of savings account offered by certain states. It is designed to help home buyers save for home-buying expenses, such as a down payment or closing costs, while taking advantage of state tax deductions.
Contributions to an FHSA are tax-deductible at the state level, meaning you can reduce your taxable income by the amount you save in the account, up to your state's limit. Each program has its own criteria, outlining how much you can save, when you have to use the funds, and any penalties for early withdrawal. Many of these accounts also offer favorable interest rates, giving you a larger return than many other savings accounts. Plus, the interest you earn may also be tax-free or tax-deferred until withdrawal.
However, it's important to remember that you can only spend the money in this account on approved home-buying expenses, such as a down payment, closing costs, real estate agent fees, appraisals, or home inspections.
Your home-buying timeline plays a major role in deciding where to keep your down payment savings. If you're planning to purchase a home in the near future, easy access to your funds matters more than a slightly higher interest rate. This is especially crucial in today's housing market, where inventory can be limited and desirable homes can move quickly. If your timeline is unclear, your priority should be the flexibility of your funds. You need to be ready to act when the right property appears, especially heading into spring, the peak real estate season.
Bottom Line: Which Should You Choose?
No matter which type of deposit account you choose for your down payment savings, do your research first. You're likely saving thousands of dollars to buy what may be your biggest investment, so make sure you find the option that best fits you, your financial situation, your buying timeline, and your goals.
Whether it's a high-yield savings account, a certificate of deposit, or another type of account, look for the bank or financial institution that charges the lowest fees and offers the highest interest rate for your chosen account type. Also review perks and extra features that could help you reach your savings goal more easily.
