4 tricks to boost your down payment

You’ve been saving and saving for the down payment on your first home, but things just never seem to move fast enough – except for rising home prices, that is. But as you’re building this large amount of cash, you might be itching to find ways to make it grow.

Investing seems like it could be the answer, but where do you start? The stock market is constantly fluctuating. Even professionals who study different stocks aren’t always lucky enough to make the right calls.

Should you really gamble with your savings?

There are ways to make your money work harder for you, and not simply sit in your chequing account earning miniscule interest.

High-interest savings accounts

When choosing where to park your cash, there are a number of factors to consider. One key component in your choice of bank should be the interest rate of your savings account. High-interest savings accounts have different interest rates depending on the financial institution. If you’re shopping for a new bank, be sure to compare interest rates with other banks or credit unions. Many financial institutions will often have promotions encouraging you to switch that involve a high interest rate either for a set period, or permanently. Do your research and make sure you’re saving with an institution that gives you the best rate.

Keep in mind, Canada is in a historically low interest rate environment, so the difference between rates may seem tiny. But if your savings are large enough, that tiny difference can have a decent impact over time.

Guaranteed investment certificates (GICs)

This investment vehicle provides plenty of peace of mind. The guarantee the name refers to doesn’t mean you’ll definitely make a lot of money. It guarantees you definitely won’t lose money, which is a promise you can’t get from most other investments. GICs let you lock in a certain sum (a minimum investment of $500 or $1,000 is typical) for a specific period of time, usually one to five years. The longer you keep money in the GIC, the higher the interest rate is and the more interest you’re likely to earn. This makes GICs an excellent option for people looking to grow their savings over the long term, but who don’t want to take on risk.

The Home Buyers’ Plan

An RRSP is a type of account that holds a variety of investments, such as GICs. RRSPs have three advantages. First, everything you contribute to your RRSP is tax deductible. Second, you can invest from an RRSP and any profits from those investments remain tax free as long as they stay in the RRSP. Third, if you’re a first-time homebuyer, you can withdraw up to $25,000 from your RRSP tax-free to put toward your first home when you participate in the Home Buyers’ Plan.

If you’re purchasing your first home with a partner or spouse, you can withdraw as much as $25,000 from each of your accounts for a total of $50,000 to put toward your home.

But there’s a catch: The Home Buyers’ Plan essentially works as a loan to yourself, so you must contribute at least one-fifteenth of the amount in your RRSP over a 15-year period or the money withdrawn will be taxed.

The bottom line

Investing your down payment in stocks can be risky if you’re buying a home within the next few years, since there’s a chance you could lose money. A safe investment option, such as a high-interest savings account or a GIC, can give you a better return on your money.

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