Money Answers: Where can I safely stash a house deposit?

BusinessDesk investments editor Frances Cook responds to emails from readers each week, answering questions about money. Below, you will find her expert advice. Send your questions to [email protected].

Hi Frances,

My husband and I recently moved from New Zealand to the Netherlands. I’m a Kiwi and he’s Dutch, for context. Before we left, we sold our home and made a profit of $500,000, which is now sitting in our NZ bank account.

We would like to buy a house here, but we would probably need that money for the deposit. Houses are very expensive in Amsterdam. However, we will need to wait about 2-3 years as my husband has just started his own business here, and lenders want to see a profit for at least a couple of years.

My question is, what would you do in our situation? Seems like a wasted opportunity to just leave the money sitting in the bank, but we have only 2-3 years to do something with it. Is that long enough?

Due to talks of recessions and tightening belts and whatnot, I also feel nervous to invest. Any help or insight is greatly appreciated.

Thanks in advance,

J.

Hi J,

I’m not surprised you needed to write in. Two to three years is a bit of a tricky grey zone, whereas you say there’s the temptation to get "more" from your money. 

However, you don’t have the time up your sleeve for something like the share market. Any investments that earn more money also come with more risk. 

Risk isn’t necessarily a bad thing, but you need time on your side to help you balance it. You don’t have much time.

We’re also talking about a deposit for your home. This isn’t exactly fun money to make big moves with. This is your security money that is used to secure a home for your family. 

I’m going to give you my thoughts on a solution, but keep reading until the end because there's also a possibility that you don't need to park this money for two years at all. 

Term deposits

I often talk about the money timeline, where the best thing to do with your money usually depends on how long you have rather than what’s happening in the world around you. 

For two years, I’d often say a term deposit. It’s just a savings account where you agree to lock your money up for a certain length of time in return for a higher interest rate. 

It usually gives a better return than a plain old savings account. 

For 3-5 years, I’d often say bonds, which is a type of investment that’s on the safer side. 

They can still go up and down in value, but not usually by as much as shares or property, and they give you back more than something like a term deposit. 

But again, because this is your home deposit money, my instincts lean towards the safer option. You really don’t want to take the chance of it going down in value right as you want to use it for a deposit. 

I’ve seen that happen before, and it causes quite a panic, justifiably. 

An investment going down in value isn’t always a problem if you have time to wait for it to bounce back. But if you need it right now in order to buy your dream home, you have a major problem on your hands. 

In this case, it’s important to put the greedy demon back in the box and give up some of the possible returns on your money in order to keep it safe for a bigger goal. 

In NZ, I would recommend a research company like Canstar to help you find good term-deposit options. See if you can find something similar in the Netherlands – an independent comparison site that shows you current term-deposit rates. 

The interest rates can vary a lot, and it's good to be sure you're getting the best deal for locking up your money rather than plumping for whoever you're currently banking with. 

Do you have to wait?

But another point is, are you sure you have to wait two years before you can buy a new home? 

You say the reason for the delay is that your husband has just started his own business, and the bank wants to see two years of profit records before approving a mortgage. 

I'll be honest: I have no experience of banking in the Netherlands, but this is a fairly common rule of thumb for banks to apply. It's also the case here in NZ (and, to my mind, a bit rough on our self-employed people). 

But you have quite a large deposit – $500,000 – sitting there. You mention that houses are expensive in Amsterdam, and they are indeed. A quick glance shows an average house price of €560,960, which currently translates to around NZ$1,024,000. 

That still gives you almost a 50% deposit, though, which is ... excellent, frankly. You could also be aiming for something cheaper than the average. 

You don’t mention if you’re employed as well, but if you are, your income should count for something. 

The reason banks like to see that track record of profit for self-employed people is that they want to be sure you can afford the mortgage repayments. 

But with a deposit that large, your weekly repayments may not be too bad, especially if you get a more modest home. 

If you’re a salaried employee, they might be able to calculate repayments based on your income and not need your husband’s business income at all. 

Is this a conversation you’ve had with the bank or a mortgage adviser? If you’ve spoken to one person and they’ve given you this answer, I’d consider trying to find a second opinion. 

If you’ve just looked up the standard rules and not had a chat at all, I’d definitely make the appointment to have a chat about it. 

My suspicion is that you don’t need to wait for two years at all. 

Send questions to [email protected] if you want to be featured in the column. Emails should be about 200 words, and we won't publish your name. Unfortunately, Frances is not able to respond to every email received or offer individual financial advice. 

Information in this column is general in nature and should not be taken as individual financial advice. Frances Cook and BusinessDesk are not responsible for any loss a reader may suffer.