Connect with us

Personal Finance

How to grow home down payment savings, top-ranked advisors say

Published

on

Saving for a home down payment can feel challenging, given current real estate prices. Using the right assets can help give your balance a lift.

When you actually need the money is the “biggest driving factor,” said Ryan Dennehy, principal and financial advisor at California Financial Advisors in San Ramon, California. The firm ranked No. 13 on the 2024 CNBC FA 100 list.

“Do you need the money six months from now, or do you need the money six years from now?” he said.

More from FA 100:

Here’s a look at more coverage of CNBC’s FA 100 list of top financial advisory firms for 2024:

That timing matters because financial advisors generally recommend keeping money for short-term goals out of the market. There can be more flexibility for intermediate-term goals of three to five years, but it’s still wise to prioritize protecting your balance. After all, you don’t want a bad day in the market to impact your ability to put in an offer on a home.

But that doesn’t mean your down payment funds need to sit in a basic savings account, either.

Here’s how to figure out how much money you might need, and some of the options for safely growing your balance:

How much you need for a down payment

Understanding how much money you might need can help you better gauge your timeline and the appropriate assets for your down payment.

As of the second quarter of the year, the median sales price of U.S. homes is $412,300, according to the U.S. Census via the Federal Reserve. That is down from $426,800 in the first quarter, and from the peak-high of $442,600 in the fourth quarter of 2022, the Fed reports.

So, for example, if a homebuyer is looking to put a 20% down payment on a $400,000 house, they might need to save about $80,000, said certified financial planner Shaun Williams, private wealth advisor and partner at Paragon Capital Management in Denver, Colorado. The firm ranks No. 38 on the FA 100.

Do you need the money six months from now, or do you need the money six years from now?

Ryan D. Dennehy

financial advisor at California Financial Advisors in San Ramon, California

Of course, a 20% down payment may be traditional, but it’s not mandatory. Some loans require as little as 5%, 3% or no down payment at all. Down payment assistance programs can also cover some of the tab.

In 2023, the average down payment was around 15%, with first-time buyers typically putting down closer to 8% and repeat buyers putting down around 19%, according to the National Association of Realtors.

Just be aware that if you put down less than 20%, the lender may require you to buy private mortgage insurance. PMI can cost anywhere from 0.5% to 1.5% of the loan amount per year, depending on factors like your credit score and down payment, according to The Mortgage Reports.

4 ways to grow your down payment savings

Here are some options that advisors say are worth considering, depending on when you hope to buy a home, how much you already have saved and how accessible you need the cash to be:

1. CDs

A certificate of deposit lets you “lock in” a fixed interest rate for a period of time, Dennehy said. You can buy a CD through a bank or a brokerage account. 

Term lengths for CDs can span from months to years. The annual percentage yield will depend on factors like the interest rate at the time, the term of the CD and the size of deposits.

Housing market is very confusing for the consumer, says HousingWire's Logan Mohtashami

If you need to access the funds before the CD matures, a bank may charge a penalty wiping out some of the interest earned, Dennehy said. Some banks offer penalty-free CD options, too.

With brokered CDs, there’s often no penalty charge for early withdrawal, but you are subject to whatever the CD is valued at on the secondary market, he said. You may also face sales fees.

As of Oct. 23, the top 1% 1-year CDs earn around 5.22% APY while the national average rate is 3.81%, per DepositAccounts.com.

2. Treasury bills

Backed by the U.S. government, Treasury bills are an asset that give you a guaranteed return, with terms that can range from four to 52 weeks. The asset could be less liquid, depending on where you purchase.

T-bills currently have yields well above 4%.

You can purchase a short-term or a long-term Treasury depending on your goal timeline, said Dennehy.

Treasury interest is subject to federal taxes, but not state or local income tax. Stacked against CD rates, Treasurys can offer a “comparable rate with less of a tax impact,” said CFP Jeffrey Hanson, a partner at Traphagen Financial Group in Oradell, New Jersey. The firm ranks No. 9 on the FA 100.

High yield savings accounts [are] great if you’re going to be buying in the next year.

Shaun Williams

private wealth advisor and partner at Paragon Capital Management in Denver, Colorado

3. High-yield savings accounts

A high-yield savings account earns a higher-than-average interest rate compared to traditional savings accounts, helping your money grow faster.

The top 1% average for high-yield accounts is 4.64% as of Oct. 23, per DepositAccounts.com. To compare, the national average for savings accounts is 0.50%.

Their ease of access makes a HYSA especially suitable as you get close to starting your home search.

“High-yield savings accounts [are] great if you’re going to be buying in the next year,” Williams said.

4. Money market funds

A money market fund generally has a slightly higher yield than a HYSA, said Dennehy. Some of the highest-yielding retail money market funds are nearly 5% as of Oct. 23, according to Crane Data.

But a HYSA is typically insured by the Federal Deposit Insurance Corporation. A money market fund is not, said Dennehy.

Still, money market funds are considered low-risk and are intended not to lose value, according to Vanguard. They may be eligible for $500,000 coverage under the Securities Investor Protection Corporation, or SIPC, when held in a bank account, Vanguard notes.

Continue Reading

Personal Finance

Trump administration loses appeal of DOGE Social Security restraining order

Published

on

A person holds a sign during a protest against cuts made by U.S. President Donald Trump’s administration to the Social Security Administration, in White Plains, New York, U.S., March 22, 2025. 

Nathan Layne | Reuters

The Trump administration’s appeal of a temporary restraining order blocking the so-called Department of Government Efficiency from accessing sensitive personal Social Security Administration data has been dismissed.

The U.S. Court of Appeals for the 4th Circuit on Tuesday dismissed the government’s appeal for lack of jurisdiction. The case will proceed in the district court. A motion for a preliminary injunction will be filed later this week, according to national legal organization Democracy Forward.

The temporary restraining order was issued on March 20 by federal Judge Ellen Lipton Hollander and blocks DOGE and related agents and employees from accessing agency systems that contain personally identifiable information.

More from Personal Finance:
Judge slams Social Security chief for agency shutdown ‘threats’
Social Security changes may impact service, benefit payments
Trump pick to lead Social Security faces questions on DOGE

That includes information such as Social Security numbers, medical provider information and treatment records, employer and employee payment records, employee earnings, addresses, bank records, and tax information.

DOGE team members were also ordered to delete all nonanonymized personally identifiable information in their possession.

The plaintiffs include unions and retiree advocacy groups, namely the American Federation of State, County and Municipal Employees, the Alliance for Retired Americans and the American Federation of Teachers. 

“We are pleased the 4th Circuit agreed to let this important case continue in district court,” Richard Fiesta, executive director of the Alliance for Retired Americans, said in a written statement. “Every American retiree must be able to trust that the Social Security Administration will protect their most sensitive and personal data from unwarranted disclosure.”

The Trump administration’s appeal ignored standard legal procedure, according to Democracy Forward. The administration’s efforts to halt the enforcement of the temporary restraining order have also been denied.

“The president will continue to seek all legal remedies available to ensure the will of the American people is executed,” Liz Huston, a White House spokesperson, said via email.

Fiserv CEO on the nomination to Social Security Commisioner role

The Social Security Administration did not respond to a request from CNBC for comment.

Immediately after the March 20 temporary restraining order was put in place, Social Security Administration Acting Commissioner Lee Dudek said in press interviews that he may have to shut down the agency since it “applies to almost all SSA employees.”

Dudek was admonished by Hollander, who called that assertion “inaccurate” and said the court order “expressly applies only to SSA employees working on the DOGE agenda.”

Dudek then said that the “clarifying guidance” issued by the court meant he would not shut down the agency. “SSA employees and their work will continue under the [temporary restraining order],” Dudek said in a March 21 statement.

Don’t miss these insights from CNBC PRO

Continue Reading

Personal Finance

Most credit card users carry debt, pay over 20% interest: Fed report

Published

on

Julpo | E+ | Getty Images

Many Americans are paying a hefty price for their credit card debt.

As a primary source of unsecured borrowing, 60% of credit cardholders carry debt from month to month, according to a new report by the Federal Reserve Bank of New York.

At the same time, credit card interest rates are “very high,” averaging 23% annually in 2023, the New York Fed found, also making credit cards one of the most expensive ways to borrow money.

“With the vast majority of the American public using credit cards for their purchases, the interest rate that is attached to these products is significant,” said Erica Sandberg, consumer finance expert at CardRates.com. “The more a debt costs, the more stress this puts on an already tight budget.”

More from Personal Finance:
How to spring-clean your finances
Americans are suffering from ‘sticker shock’ — how to adjust
1 in 5 Americans are ‘doom spending’ — how that can backfire

Most credit cards have a variable rate, which means there’s a direct connection to the Federal Reserve’s benchmark. And yet, credit card lenders set annual percentage rates well above the central bank’s key borrowing rate, currently targeted in a range between 4.25% to 4.5%, where it has been since December.

Following the Federal Reserve’s rate hike in 2022 and 2023, the average credit card rate rose from 16.34% to more than 20% today — a significant increase fueled by the Fed’s actions to combat inflation.

“Card issuers have determined what the market will bear and are comfortable within this range of interest rates,” said Matt Schulz, chief credit analyst at LendingTree.

APRs will come down as the central bank reduces rates, but they will still only ease off extremely high levels. With just a few potential quarter-point cuts on deck, APRs aren’t likely to fall much, according to Schulz.

Credit card debt?

Despite the steep cost, consumers often turn to credit cards, in part because they are more accessible than other types of loans, Schulz said. 

In fact, credit cards are the No. 1 source of unsecured borrowing and Americans’ credit card tab continues to creep higher. In the last year, credit card debt rose to a record $1.21 trillion.

Because credit card lending is unsecured, it is also banks’ riskiest type of lending.

“Lenders adjust interest rates for two primary reasons: cost and risk,” CardRates’ Sandberg said.

The Federal Reserve Bank of New York’s research shows that credit card charge-offs averaged 3.96% of total balances between 2010 and 2023. That compares to only 0.46% and 0.43% for business loans and residential mortgages, respectively.

As a result, roughly 53% of banks’ annual default losses were due to credit card lending, according to the NY Fed research.

“When you offer a product to everyone you are assuming an awful lot of risk,” Schulz said.

Further, “when times get tough they get tough for most everybody,” he added. “That makes it much more challenging for card issuers.”

The best way to pay off debt

The best move for those struggling to pay down revolving credit card debt is to consolidate with a 0% balance transfer card, experts suggest.

“There is enormous competition in the credit card market,” Sandberg said. Because lenders are constantly trying to capture new cardholders, those 0% balance transfer credit card offers are still widely available.

Cards offering 12, 15 or even 24 months with no interest on transferred balances “are basically the best tool in your toolbelt when it comes to knocking down credit card debt,” Schulz said. “Not accruing interest for two years on a balance is pretty hard to argue with.”

Subscribe to CNBC on YouTube.

Continue Reading

Personal Finance

The 60/40 portfolio may no longer represent ‘true diversification’: Fink

Published

on

Andrew Ross Sorkin speaks with BlackRock CEO Larry Fink during the New York Times DealBook Summit in the Appel Room at the Jazz at Lincoln Center in New York City on Nov. 30, 2022.

Michael M. Santiago | Getty Images

It may be time to rethink the traditional 60/40 investment portfolio, according to BlackRock CEO Larry Fink.

In a new letter to investors, Fink writes the traditional allocation comprised of 60% stocks and 40% bonds that dates back to the 1950s “may no longer fully represent true diversification.”

“The future standard portfolio may look more like 50/30/20 — stocks, bonds and private assets like real estate, infrastructure and private credit.” Fink writes.

Most professional investors love to talk their book, and Fink is no exception. BlackRock has pursued several recent acquisitions — Global Infrastructure Partners, Preqin and HPS Investment Partners — with the goal of helping to increase investors’ access to private markets.

More from Personal Finance:
Why uncertainty makes the stock market go haywire
Investors are ‘miles ahead’ if they avoid 3 things, CIO says
How investors can ready their portfolios for a recession

The effort to make it easier to incorporate both public and private investments in a portfolio is analogous to index versus active investments in 2009, Fink said.

Those investment strategies that were then considered separately can now be blended easily at a low cost.

Fink hopes the same will eventually be said for public and private markets.

Yet shopping for private investments now can feel “a bit like buying a house in an unfamiliar neighborhood before Zillow existed, where finding accurate prices was difficult or impossible,” Fink writes.

60/40 portfolio still a ‘great starting point’

After both stocks and bonds saw declines in 2022, some analysts declared the 60/40 portfolio strategy dead. In 2024, however, such a balanced portfolio would have provided a return of about 14%.

“If you want to keep things very simple, the 60/40 portfolio or a target date fund is a great starting point,” said Amy Arnott, portfolio strategist at Morningstar.

If you’re willing to add more complexity, you could consider smaller positions in other asset classes like commodities, private equity or private debt, she said.

However, a 20% allocation in private assets is on the aggressive side, Arnott said.

The total value of private assets globally is about $14.3 trillion, while the public markets are worth about $247 trillion, she said.

For investors who want to keep their asset allocations in line with the market value of various asset classes, that would imply a weighting of about 6% instead of 20%, Arnott said.

Yet a 50/30/20 portfolio is a lot closer to how institutional investors have been allocating their portfolios for years, said Michael Rosen, chief investment officer at Angeles Investments.

BlackRock CEO Larry Fink: Infrastructure will be the largest growing sector in private capital

The 60/40 portfolio, which Rosen previously said reached its “expiration date,” hasn’t been used by his firm’s endowment and foundation clients for decades.

There’s a key reason why. Institutional investors need to guarantee a specific return, also while paying for expenses and beating inflation, Rosen said.

While a 50/30/20 allocation may help deliver “truly outsized returns” to the mass retail market, there’s also a “lot of baggage” that comes with that strategy, Rosen said.

There’s a lack of liquidity, which means those holdings aren’t as easily converted to cash, Rosen said.

What’s more, there’s generally a lack of transparency and significantly higher fees, he said.

Prospective investors should be prepared to commit for 10 years to private investments, Arnott said.

And they also need to be aware that measurement issues with asset classes like private equity means past performance data may not be as reliable, she said.

For the average person, the most likely path toward tapping into private equity will be part of a 401(k) plan, Arnott said. So far, not a lot of companies have added private equity to their 401(k) offerings, but that could change, she said.

“We will probably see more plan sponsors adding private equity options to their lineups going forward,” Arnott said.

Don’t miss these insights from CNBC PRO

Continue Reading

Trending