Where Should You Keep Your House Deposit Before Using It? – UK

James Beattie By James Beattie 11 Min Read

Saving for a house in 2023 isn’t an easy process. It requires sacrifice and discipline to save enough to get on the property ladder. Most people take years to reach their savings goal for a deposit.

While saving for a deposit, you want to ensure your money is working for you. Leaving your money in a current account isn’t the best option for several reasons. First, it’s easily accessible making it easier to spend it. Second, it’s not earning you any interest. Let’s look at where to put your house deposit before using it.

Quick Overview
While saving for a house deposit, the best place to put your money is a Lifetime ISA. This allows you to save £4,000 per year and receive a 20% bonus from the government each year. This is available if you are under 40 and are a first-time buyer. If a lifetime ISA isn’t an option, easy access or a fixed-rate savings account is a good place for your money.

Where To Save Your House Deposit

There are multiple viable options for saving your money when you are deciding to purchase a house. The best option for you will depend on your personal situation. However, for the majority of people, there is one option that beats them all.

Here are a few things you should consider when thinking about where to save your money:

  • Are you under 40 and purchasing a house that costs less than £450,000. (Lifetime ISA is an attractive option if you meet this criteria)
  • How many years from now are you planning to purchase your house? (Fixed-rate savings or investments may be an option if you aren’t buying for years to come)

For most people buying their first home, a Lifetime ISA will be the best option. If you are buying a buy-to-let property, second home or are over 40 then you will need to look at alternative options.

Lifetime ISA

A Lifetime ISA is a savings account that allows you to save up to £4,000 per year and receive a 25% bonus on the money you have deposited. This means you can get up to £1,000 per year for free.

If you are under 40 and the first house you plan to buy is under £450,000 this is the best place to start saving. No other account is going to give you a 25% return on your money.

When you open a Lifetime ISA you don’t just get the 25% bonus. You will receive interest on the money or you can even choose to invest the money if you want however this may not be the best idea if you plan to purchase a house in the near future.

Two Lifetime ISA’s I would recommend checking out are:

Moneybox – Moneybox currently offer 4% AER on their Cash lifetime ISA.

Hargreaves Lansdown – Allows you to hold your money in cash or in Stocks & Shares. 0.25% annual account charge.

Worth noting:

  • The £4,000 counts towards your annual ISA Limit
  • If you don’t purchase a house with the money you will have to pay a penalty of 25% when withdrawing the money unless you wait until you are over 60.

If you are saving more than £4k per year, your first £4,000 should go into your Lifetime ISA and the extra money you save should be put into one of savings accounts mentioned below.

Savings Accounts

If you don’t meet the requirements for a Lifetime ISA then a savings account is likely your best option. The type of savings account you choose will depend on your timeline for buying a house.

Buying a house in the near term – If you plan on buying a house in less than 12 months from now, your money is best kept in an easy-access savings account. These accounts allow you to access your money at any time without any penalties for depositing or withdrawing. Right now interest rates are as high as they have been in the past 10 years. Get your savings working for you by utilizing a high-interest savings account.

We have a full guide on the best savings accounts however one I highly recommend and use myself is Chip. They are currently offering one of the best interest rates on the market.

Our Top Savings Pick
Chip | 4.84% Interest Easy Access Savings

Chip is an award-winning savings and investment app. They became popular with their high-interest savings account but also offer investment services and automatic saving.

We earn a commission when you join chip through our link, at no extra cost to you.

Buying A House In 1+ Years – If you are saving for a house but don’t plan on making the purchase for a few years, you may be able to lock in a better interest rate with a fixed-rate offer.

Currently, you can get over 6% with certain fixed-rate offers. You can view some of the best options below based on your timeframe.

ProviderAccount TypeTermRateMin Opening BalanceApply
Smart Save1 Year Fixed Rate Saver1 Year6.06%£10000Apply
Cynergy Bank2 Year Fixed Rate Bond2 Years6.06%£1000Apply
Cynergy Bank3 Year Fixed Rate Bond3 Years6.01%£1000Apply
HTB4 Year Bond Issue 144 Years5.85%£1Apply
Cynergy Bank5 Years Fixed Rate Bond5 Years5.81%£1000Apply
Best Fixed Rate Accounts 2023

These are the two safest options for saving your house deposit. You’re making a good return on your money with essentially zero risk.

Should You Invest Your House Deposit?

For most people, it is not advised to invest your house deposit if you plan to purchase a house in the next 5 years. Investments go down as well as up. You don’t want to be getting ready to purchase a house only to find out your investment declined significantly when you needed it most.

If you’re starting to save now for a house that you plan to buy 10+ years down the line, then investing may be a viable option. Over a long time horizon, investing in broad index funds will usually beat the rate on a savings account.

How To Save A House Deposit Fast

If you want to save for a house deposit fast I would recommend checking out our full guide to saving £10k in a year. Here are some key takeaways from that article:

1. Budgeting and Expense Tracking

  • Start with a Comprehensive Budget: Detail all your monthly income and expenses to understand where your money goes. Identify non-essential expenses that you can cut or reduce to free up more funds for saving.
  • Use Expense Tracking Apps: Tools like Money Dashboard, Yolt, or Emma can help you monitor your expenses and keep you on track.

2. High-Interest Savings Account

  • Leverage a High-Interest Account: Once you’ve set aside money for your house deposit, deposit it in an ISA (Individual Savings Account), particularly a Lifetime ISA. These types of ISAs can help you save towards buying a home and come with government bonuses.

3. Government Schemes and Grants

  • Look into Shared Ownership: With shared ownership, you can buy a share of a property (between 25% and 75%) and pay rent on the remaining share. This means a smaller deposit and mortgage are required.
  • Lifetime ISA: The government will provide a 25% bonus on savings up to a certain limit annually, which can significantly boost your house deposit fund.

4. Minimise Debt

  • Prioritise High-Interest Debt: Pay off high-interest debts like credit cards before saving, as the interest you’ll save often outweighs the potential interest you’d earn from savings.
  • Avoid Taking On New Debts: The more monthly commitments you have, the harder it can be to save consistently.

5. Generate Additional Income

  • Freelancing or Side Jobs: Leveraging skills or hobbies can result in extra income that can be channeled directly to your house deposit fund.
  • Sell Unwanted Items: Decluttering and selling items online or in car boot sales can generate additional funds.
  • Rent Out a Spare Room: If you have space available, consider renting out a room on platforms like Airbnb or through a traditional rental agreement.

Final Thoughts

After reading this, you should now have a good idea of where to put your house deposit before you make the big purchase. By utilizing a Lifetime ISA or High interest savings account you can speed up the time it takes to save a deposit by putting your money to work.

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I'm passionate about personal finance and making money. Currently trying to FIRE solely by building online assets. Grew my stock portfolio to £86,000 by 26.
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