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Where should I invest for the short term?

I currently have $40,000 in my savings account and $12,000 in student loans outstanding, which is my only debt. I plan to purchase my first home in two or three years. For the time being, what is your short term financial recommendation? Do I pay off my student loans in full? Should I continue to increase my savings for a down payment? Should I purchase a short term money market account or CD?

Financial Planning, Investing
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July 2016

Nice work. Sounds like you are moving in the right direction.

I would agree with Dominique that (with current rates) you’ll getter a better return by paying off the student loans vs. putting the money in a money market account. However, buying a home you are going to live in is often a very good investment over the long run. You may want to prioritize that, especially if the student loan rates are low. Make sure you have ample savings for the down payment and any unexpected costs that could arise (having to replace the water heater, fixing the plumbing, etc.) I would also suggest having at least 6-12 months in emergency savings in case you lose your source of income.  And don’t forget about closing costs, costs to furnish the home, moving. etc.

However, I would caution you on buying if you aren’t sure you plan to stay in the home for at least 10 years. There are some very good calculators you can find online where you can compare renting vs. buying. Here is one for example: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

As far as where to put your savings, it sounds like you have the right idea. 2-3 years is not enough time to take on risk to gain a better return on your portfolio, so I would agree that a money market fund, savings account, or ultra-short term high quality bond fund is best. You can find the best savings account rates on bankrate.com: http://www.bankrate.com/funnel/savings/

July 2016
July 2016
July 2016