If you expect to need the money in the next three years I would not put it in the market. You don't want to take the chance that the principal will take a hit.

With the "high" interest savings accounts at a paltry. 75% we keep most of our emergency fund in a few long term CDs (7year at 3%+). The principal is safe, even after the penalty for early withdrawal the return far exceeds the savings accounts if you are in for over a year and a half (1 year int if >5yrs early, 6 months if >1yr early, or 3 months within a year of maturity). You can take the earnings out at any time without penalty, and we spread it between two so that if we don't need it all we don't have to break it all.

The higher returns come with higher risk of losing the money.

Don't chase past performance. Last year's huge gain in stocks is by no means guaranteed over the next 1-3 years while you are growing your nest egg.

Read "A Random Walk Down Wall Street" if you want to understand more about how risk works with returns.

This might help you as well. http://www.daveramsey.com/new/baby-steps/

For a short term investment, you need to have your money as liquid as possible, which guarantees the principal a bit more but does have a lower return.

Just keep saving. Also you should have 3-6 months of living expenses saved BEFORE you buy a house. Also budget 1% of the cost of the house for YEARLY maintenance, furniture, and upkeep. (Appliances, yard, etc.)

I second Capital One 360. I had over $300 in bank interest this year because I have our Kitchen savings find with them.

Anonymous wrote:I have saved 20K to buy a house. I am not going to buy this year or until I have a way bigger egg.

Just read about someone's emergency fund...putting that into a mutual fund.

If returns are high this year, like 15% or higher, how much would the penalty be if I put this in a mutual fund for a year.

It is risky, but there has got to be a better return than my .10% money market account.

I wouldn't put an emergency fund in a mutual fund and I definitely wouldn't put a downpayment for a house in a mutual fund. As an aside, I think the only reason the stock market is up is because people are chasing returns. You can find a savings account with a higher interest rate (Ally, Discover, Capital One 360, etc).

I assume you're not in DC, because $20k won't get you a house even if you can somehow get a 5% down loan.

Re: mutual funds...you are referring to early redemption penalties, which are not present on most funds but generally run up to about 2% on the total assets redeemed if redeemed within a required initial investment window (60 days is common). Otherwise, no penalties usually.

Re: your expectation of 15% ... That is mighty ambitious. Long term stock market returns average about 9% per year and that is with TREMENDOUS volatility. You're nearly as likely to lose 15% after a run like we've had as you are to make another 15% from here in 2014. Could certainly happen, but don't bet your down payment on it. If you're going to need money in the next year (really, the next three years), it doesn't need to be invested in risky assets. That's for long term money only.

I have saved 20K to buy a house. I am not going to buy this year or until I have a way bigger egg.

Just read about someone's emergency fund...putting that into a mutual fund.

If returns are high this year, like 15% or higher, how much would the penalty be if I put this in a mutual fund for a year.

It is risky, but there has got to be a better return than my .10% money market account.