Buying a home is one of the biggest financial commitments most of us will ever make.
According to the Census Bureau, the median price of a home in the United States in 2010 was $US221,800. Bearing in mind that, ideally, you would have a 20% down payment, that means you’ll need to sock away $US44,360.
Relatively few of us have that kind of money idling in our savings, but most of us could manage to unearth a smaller sum from beneath the proverbial couch cushions. Say … $US10.
If you were to save just $US10 a day for that $US44,360 down payment, how long would it take?
To figure it out, we used an online compound interest calculator to simulate two savings methods:
1. The high-yield savings account
The first is a high-yield savings account like the one offered by Ally (you can find it through Bankrate), with an interest rate of .87%, compounding daily.
With this account, it would take you between 11 and 12 years to save a down payment. At 11 years, you’d have $US42,137; after 12, you’d have $US46,170.
2. The investment account
Now, here’s a twist: If you’re putting the money you plan to spend on a home in an investment account rather than a savings account, your money could potentially grow much faster. Although, since it is invested, it’s not a sure thing. If you were to invest your money in a portfolio with a conservative 4% annual return, it would take you about 10 years to save a down payment. At the 10-year mark, you’d have $US44,756.
(For the record, if you were to have a more impressive 6% return on your investments, it would take a little over nine years to save a down payment. At nine years, you’d have $US43,278; after 10 years, you’d have $US49,650.)