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What's the best place to save a house down payment?

Q: My husband and I are selling a house and will not purchase a new one for some time, perhaps a year. In the meantime, we are living on a houseboat that we own and just paying a small slip rental fee. We intend to clear at least $20,000 when the house sells, which we will use on a down payment on a new house. What's the best place to put that money in the meantime? A savings account or other options?

A: There are a few options you should look at, including savings accounts, money market accounts, and CDs.

Whether you should include CDs among your options depends on the timing of the sale of your old house (assuming you have enough cash flow from other sources to cover the slip rental fee you'll be paying while between houses).

If it turns out that the sale of your house is delayed, or you aren't completely sure how soon you'll want to buy a new house, you might want to steer clear of locking your money up in a CD. However, if you can find a 1-year CD with a relatively small penalty for early withdrawal, this might be another way to keep your options open.

If you are able to commit money to a one-year CD, in theory this should be the best option--but keep an open mind. According to recent FDIC figures, on average savings accounts are paying 0.12 percent in interest, money market accounts are paying 0.17 percent, and 1-year CDs are paying 0.36 percent. However, the reason you should consider all three is that the top interest rates in their respective categories are considerably higher. So make up your mind only once you've shopped around to find the best rates available in each category.

Got a financial question about saving, investing, or banking? MoneyRates.com invites you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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