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Why Don’t They…Offer Super High-Yield Savings Accounts for Down Payments?
Money earn
ing more money – it’s a wonderful thing.
As regular FiLife readers may know, my husband and I are looking to buy our first apartment. Our down payment resides in a Citibank e-Savings account, which currently yields 4.0%. We’ve saved a respectable sum, and I get a sense of satisfaction watching it grow without having to do anything at all.
But the last time I checked the balance - and I do this often - I started thinking: Can I do better?
So I came up with an idea. If I was a bank product manager for a day, I’d create something tailor-made for first-time homebuyers: an account specifically earmarked for down payment savings that offers one percentage point more in interest than the highest-yielding online savings account already in the market.
Just one catch though: In order to qualify for the higher rate, you’d have to get prequalified or preapproved for a mortgage with the same bank. You wouldn’t be required to borrow from the bank if you did find a home to buy, but if you didn’t withdraw the money within a year (or couldn’t prove that you’d bought a home with the proceeds when you did take it out), the rate would revert back to the old (or new prevailing) rate.
Most buyers should get preapproved anyway because it shows sellers that you’re a serious buyer that can get a mortgage quickly. Since the preapproval process requires a lot of paperwork (collecting and copying months of banking/brokerage/retirement account statements, tax returns, copies of drivers’ licenses, etc.), you’ll be more likely to start shopping for a mortgage with the lender that preapproved you.
It makes sense for the banks, too: Offering a down-payment high-yield savings account is a smart way for financial services companies to generate customer leads.
My down payment money is parked at Citi because that’s where I do the rest of my banking (and the rate was higher a few months ago — I realize that I could already be getting a better yield elsewhere). I can easily transfer money between my checking account and my e-Savings allowing me to maximize my dollars earning interest.
If Citi provided me with an incentive to get preapproved with them, I probably would have done it – it doesn’t really matter where you get preapproved. As such, it would’ve been the first place I went to begin my mortgage search. Instead, the mortgage broker my real estate broker recommended is going to get first dibs on our business.
Does anyone know of a financial provider that offers a super high-yield down payment savings account or similar incentives?
If so, sign me up.
Illustration: InternetSavingsAccount.Biz
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(2) Comments
Just saw your post Tara. I have two answers to your questions.
First, the mortgage savings account. DCU.org , one of the best national credit unions with open membership (just join an affiliated association), has something very much like the mortgage savings account you wish for with their “American Dream” program described at https://www.dcu.org/prodserv/savings/american_dream_program.html . There are conditions, but they aren’t especially burdensome.
Second, the Citibank savings account. Citi has an annoying tendency to cut the rate on existing accounts, and then launch new accounts with better rates, in the hopes that current account holders will settle for the dropping rate. Now, their best “esavings” product is their “Ultimate Money Account”, with an APY currently one half percent higher than their “e-savings account”. A current Citi customer like yourself can open it instantly online with no fees or minimums.
Hope those help,
Dave
Tara,
In a normal yield curve, a CD laddering strategy could help you maximize your yield as well. I thought I would do some quick checking for you, and it doesn’t seem that this techique will work so well in the current macroeconomic environment. I was only able to increase your yield $236 over 5 years–the opportunity cost over that period is just too high. I did see that Countrywide was paying 5.3% on a $10,000 minimum for their Savings Link account. I don’t know what the red tape is, but that is a pretty good APY. What ever happened to the State Bank of Toledo 6.01% APY on their Hometown Checking?? 
