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Choosing the Best Savings Account for Your Mortgage: A Comprehensive Guide

Saving for a mortgage down payment is an important step in the home buying process. Selecting the right savings account to grow your funds can make a big difference in how quickly you reach your goal. When comparing savings accounts for your mortgage, key factors to consider include interest rates, fees, convenience, and other features.

High-yield savings accounts and money market accounts typically offer higher annual percentage yields (APYs) than traditional savings accounts. This enables your deposit to earn more interest over time. However, these accounts may have higher minimum balance requirements or monthly maintenance fees. Certificates of deposit (CDs) lock in a fixed interest rate for a set period but limit access to your money.

Look for a savings account with competitive interest rates, low or no monthly fees, easy accessibility through online and mobile banking, ATM access, and strong customer service. If you already have a checking account, linking it to a savings account at the same brick-and-mortar or online bank can provide benefits like overdraft protection.

As you save for your mortgage down payment, make sure to also budget for other financial goals like an emergency fund, retirement, and investing. Work with a financial advisor to develop a personalized plan. Smart savings habits will put you in a better position when you are ready to get pre-approved and apply for a mortgage loan.

Here is a table showing the best savings accounts for a mortgage:

Savings AccountWhy It’s Good for a Mortgage
High-Interest Savings Account (e.g. American Express High Yield Savings)Higher interest rate to grow money faster (4.25% APY) – No minimum deposit or monthly fees
No-Fee Savings Account (e.g. Synchrony Bank)No monthly fees or minimum balance – Better interest rates than traditional banks
Online-Only Savings Account (e.g. FNBO Direct)Higher interest rates – No monthly fees – Easy online access and management
Bonus Interest Rate Savings Account (e.g. Chase Bank)Bonus interest rates to maximize savings – Large ATM network for easy access
Linked Checking-Savings Account (e.g. Wells Fargo)Integrates checking and savings accounts – Overdraft protection – Solid branch and ATM network

Why Should You Use a Savings Account for Your Mortgage?

A savings account is a bank account used to store money for personal savings to cover various financial needs, such as retirement planning, home down payment, item purchases, medical expenses, charitable donations, etc. 

Savings aside, it can also be used for sending money. Most savings accounts do not require a high minimum balance, making them suitable for people with varying income groups. For the deposited funds, savings account holders also receive a modest interest, which can add up over time.

Having a savings account alongside your mortgage can be highly beneficial. Here why:

Offset Interest

Even though the interest rates on savings accounts are on the lower side of the spectrum, you still earn some extra money. The interest earned on the deposited funds can somewhat offset the interest you pay on your mortgage. 

Auto-debit Payments

Some homeowners use the savings account for auto-debit facility. It helps them not miss their monthly payments. For mortgages that allow prepayments, savings accounts are also used for prepayments towards the principal amount.

Lesser Financial Risk

The funds in the savings account can help one deal with unexpected expenses without depending on high-interest loans or credit card debts. The savings enable one to deal with financial uncertainties while staying on track with mortgage payments.

Peace of Mind 

Having a savings account gives one better control over their finances. Furthermore, one doesn’t risk late fees or penalties over mortgage payments, which can contribute to less anxiety and more peace of mind.

How to Choose the Best Savings Account for Your Mortgage

1. Look at Interest Rates

You can start by comparing interest rates offered by various banks to determine how well you can build your savings over time, which can help you immensely with mortgage payments. You will find the interest rates on the bank’s website or by visiting the branch.

2. Consider Fees and Charges

There are certain account maintenance fees that you should be aware of. So, review all the bank charges to understand the account maintenance charges, ATM card fees, overdraft fees, transaction fees, etc., to minimize unwanted expenses that can hinder your mortgage payment ability.

3. Check Accessibility and Convenience

When choosing a savings account for your mortgage, check the availability of online banking services, ATM access, branch locations, and mobile apps to help you with smooth account operations. Also, see how easy it is to transfer funds from the savings to your mortgage account.

4. Evaluate Customer Service

Look for a savings account in a bank with a highly responsive customer support team to promptly help you with your queries and complaints. You should be able to contact the bank through various channels, such as chat, email, phone, and branch visits.

5. Review Additional Features and Benefits

Many banks offer perks for having multiple account relationships with them. So, explore all the add-on facilities, such as overdraft facility, discounts on loan rates, exclusive reward program, joint owner addition (if needed), etc.

Top 5 Savings Accounts for Mortgages

Choosing a savings account for mortgages would depend on your specific financial goals. Here are some suitable options:

1. High-Interest Savings Account

To make the deposited money work harder for you, look for a savings account with competitive interest rates. The American Express® High Yield Savings Account will grow your money quickly because users are offered 4.25% APY, which is above the average interest rate for a savings account. Plus, there are no minimum deposit fee obligations on the account. 

2. No-Fee Savings Account

As an introductory or promotional offer, some banks do not charge account maintenance fees so that you are not troubled by undesirable expenses. One of the best choices for a no-fee savings account would be the Synchrony Bank no-fee savings account. There is no monthly or minimum balance requirement.  Moreover, the interest rates are also better than the traditional banks, allowing your savings to grow faster. 

3. Online-Only Savings Account

An online-only savings account is an excellent choice for those comfortable with digital transactions. Online-only savings accounts usually feature higher than usual interest rates with no monthly fees. FNBO Direct would be a great choice for a high-interest returning online savings account that can be opened with as little as one dollar. Their mobile banking platform is also second to none.

4. Bonus Interest Rate Savings Account

This type of account comes with a bonus interest rate to boost savings. A bonus interest rate savings account helps to maximize savings and eventually lets you pay more towards your mortgage. The Chase Bank regularly offers welcome bonuses to attract new customers. Compared to other banks, they also have an extensive network of branch and ATM networks, making it very convenient to access your savings account. 

5. Bank Linked Checking-Savings Account

The Linked checking-savings account integrates your savings and checking account (at the same bank) to help you manage your finances and banking features well. One of the largest banks in the United States, Wells Fargo is a great choice for opening a bank linked checking-savings account because they provide overdraft protection options, online banking, mobile banking, and a solid branch and ATM network. 

How to Open a Savings Account for Your Mortgage?

You can open a savings account for your mortgage online or offline. The specific bank will tell you the required documents you must submit at the time of account opening, such as the government ID proof, Social Security Number, address proof, and income information.

It’s advisable that you read the banking terms and conditions to familiarize yourself with all the necessary information. If you agree with the applicable rules, you can sign and submit the documents in person or electronically.

Once the bank verifies everything, you will receive the account number and the associated card (if any). You can start making small or large deposits into the savings account.

How to Manage Your Mortgage Using a Savings Account?

  • First and foremost, determine your mortgage-related goals. Are you targeting to pre-close the mortgage or manage your monthly payments?
  • If the purpose of the savings account is to make timely mortgage payments, set the account for auto-debit.
  • If the purpose is to save money for mortgage-related goals, set a realistic savings target and timeline.
  • If the purpose is to cover unexpected expenses, aim to save enough to stay on track with your mortgage payment even during financial crises.
  • Finally, stay updated about the changing mortgage interest rates for refinancing opportunities.

Tips to Maximize Your Mortgage Savings.

Mortgage savings can go a long way in improving your financial situation. Here are some tips to maximize your mortgage savings.

Get better interest rates

To reduce the overall cost of your mortgage, research and finalize a savings account for your mortgage with competitive interest rates. You can use financial comparison sites to evaluate interest rates.

Make savings a priority

To maximize savings, make savings a priority. It should not be an afterthought. You should allocate a portion of your income towards savings every month without fail.

Use it only for emergency needs

You should use your savings account only for emergency needs and not for other non-essential expenses. Discipline yourself to always stay on track when you feel tempted to use the funds for any other purpose.

Monitor Regularly

It’s equally important that you monitor the mortgage savings regularly to stay on top of your finances. You can use any free app to track your savings progress.

Accelerate the progress

If unexpected funds come your way, direct them toward mortgage payments. Making extra payments on a regular basis will reduce the amount of interest you pay over the mortgage’s life.

Pay off sooner

If you save enough to make a substantial down payment or foreclose the mortgage, talk to the mortgage lender to secure better mortgage terms.

What Are Some Common Mistakes When Using a Saving Account for a Mortgage?

Here are some common mistakes that can hinder your financial progress when using a savings account for a mortgage.

  • Typically, individuals do not save enough to cover unexpected emergencies, which disrupts their mortgage payment fund.
  • Many are inconsistent with their savings. As a result, they fail to achieve their mortgage-related financial goals.
  • Some don’t have a separate savings account for their mortgage, which makes them spend their savings on unrelated things.
  • Not setting up for automatic payments is another mistake many make, which leads to inconsistent payments and even incurs late fees.
  • Overlooking the current market condition to secure a better interest rate is another common mistake.
  • One can limit the savings potential by not exploring higher-yield savings account options.
  • Some individuals fail to reevaluate and adjust their mortgage savings plan, leading to financial stress and, ultimately, poor financial decisions.