I have $25,000 in savings, am debt-free, and I live at home; what's the best way to make my money grow?
I'm 24 years old and making roughly $30,000 per year. I put 8 percent of my income into my employer's 401(k). I plan to buy a house within the next few years, but in the meantime I don't want to leave this money in a savings account with interest rates being as low as they are. I have $25,000 in savings, am debt-free, and I live at home. What's the best way I can use my savings to increase before I use it for a down payment?
Congratulations on being debt free and participating in your employer's 401(k) plan! I agree with the other answers which recommend keeping your $25,000 in an investment that is safer than the stock market. If you know that you will not need the money within a specific period of time (like one year), you could consider putting some of it (maybe half?) in a 12-month CD that has the same kind of FDIC insurance as bank accounts. If you know you have 18 months, you might consider putting some the money in an 18-month CD. With interest rates rising, I would not seek out longer term CDs than those right now. CDs tend to pay higher interest rates. Of course, you can't usually access the money during the term of the CD, so keep enough in a high-interest bank account to cover emergencies. Talk to your bank; you don't need to pay adviser fees to buy a CD.
I know you want to earn more of a return, so look at your 401(k) investment allocation as well. Keeping your home down payment in cash, along with your age, suggests you could be quite aggressive in your retirement plan holdings. If you own a lot of bond funds in that account, consider moving them to an equity index fund, like the S&P 500 if you want a higher return. Of course, this idea assumes your risk tolerance level matches an aggressive portfolio. Talk with a CFP(r) professional if possible or at least the person who comes each year to talk about your company's retirement plan. He or she could give you some guidance here!
Again, congrats, and best of luck!
Stocks are the best source to help your money grow.
I would first suggest thinking about a time horizon or goal on when you plan on buying a house. That should really determine what type of investments are suitable. If it's within a couple years, you don't want to be too aggressive incase a market correction happens within that window.
Rule of thumb if you're young invest in stocks
I would put your savings in a high-yield savings account such as at American Express or Ally Bank. I would not advise exposing your down payment money to risk by investing it. What if the market crashes a year from now and stays that way for several years? You'd be digging yourself an even deeper hole. With a high-yield savings, at least you can earn 1.7%+ on safe, FDIC-insured cash. Keep saving to it every month until you have enough for your down payment.
Great job on your retirement and short term savings! Unfortunately, there aren't a ton of options to keep your money safe until the house purchase but still get tons of growth. With a time horizon of 2 years or less, you don't want to put that money at risk in the stock market. Safety is key, at the risk of losing out on growth. If you think you may be 3 or more years away from your home purchase, a short term bond fund might give you a boost in interest, but there is still risk to principal.
Other than using a higher yielding savings account, you do not want to risk investing your $25,000 by investing it. If you are planning to buy a house in the next few years, then the $25,000 can be used as part of the downpayment. You may need to come up with additional downpayment money but it depends on the purchase price of your future home. In other words, if you are planning to buy a home for $200,000, then 20% (down payment) would be $40,000. You are short $15,000 of that 20% downpayment so you should consider adding additional savings to reach the 20% downpayment goal. You may be able to put less money down on a home, but working toward 20% is a good start.
If you want to earn higher income on your cash, then I would recommend establishing an online savings account at American Express Bank, Synchrony Bank, Ally Bank, etc. Most of those online banks are yielding about 1.60% or more. You can link your primary checking account to those accounts. There are no minimums and literally zero fees.
You have zero debt, but I'm not sure of your other living expenses. However, since you live at home, they are probably low. You may want to consider establishing a Roth IRA, which is a great retirement account to help compliment your 401(k). You can contribute up to $5,500 per year and the money grows tax-free. It is a powerful retirement account. If you have the cash flow to make the maximum, then I would strongly encourage you to do so. You can establish a Roth IRA at a discount broker like Schwab or Fidelity. At some point, you may want to target 10% toward your 401(k) or even higher. However, if contributing 8% to your 401(k) allows you to contribute the maximum to your Roth IRA, then continue contributing 8% to your 401(k).
Lastly, make sure you have a sound investment allocation, with a fair amount of exposure to growth assets like U.S. and foreign stocks, using high-quality mutual funds and/or exchange-traded funds. You are young, and should be able to withstand greater volatility than most meaning you have many years to make up for losses in your portfolio should your portfolio suffer temporary setbacks.
Best of luck to you!