CFPs weigh in: Here's the best place to put your money when saving for a house

Although only 21% of consumers believe that it's a good time to buy a home, according to a recent survey by Fannie Mae, it's never too early to start building a down payment fund.

Money earmarked for a big investment, such as a house, should be kept in a savings account where it can grow while also still being protected through FDIC insurance. Soon-to-be homeowners should avoid investing their down payment money unless homeownership is a far-off goal in the distant future.

CNBC Select spoke with two certified financial planners about their advice.

Before we dive in, you should first calculate how much cash you'll need to save up to buy your home. Conventional loans typically require a down payment of 3% to 20% of the home's value. However, the average down payment in the U.S. is about 6%. On top of that, you need to factor in closing costs and other fees, which can be another 2 to 5% of your home's purchase price, according to the real estate site Zillow.

Then, experts recommend setting aside cash reserves to cover at least three months of living expenses, to play it safe — this is also known as an emergency fund. And all of that is before factoring in homeowner's insurance, furnishings and other move-in costs.

Lauryn Williams, a Texas-based CFP and founder of Worth Winning, suggests putting your cash into any type of savings account. Ideally, choose one offering a higher interest rate than your traditional savings or checking account.

Examples include a high-yield savings or money market account. Though savings rates are lower across the board when compared to stock market returns, these types of savings accounts can still earn you much more than the national 0.30% or 0.05% average Annual Percentage Yields (APY) on savings and interest-bearing checking accounts, respectively.

With a money market account, users still get a few checking account features, such as check-writing privileges, debit cards and ATM access. Savings accounts, on the other hand, are not set up for making very many withdrawals and transactions, but you can still access the cash should you ever need it.

Select analyzed and compared dozens of savings accounts offered by online and brick-and-mortar banks, including large credit unions. Below are our top-rated high-yield savings accounts and money market accounts. They each offer interest rates higher than the national average, plus they are all FDIC-insured and have $0 monthly maintenance fees and require $0 minimum deposits to open an account. As the Fed continues to raise interest rates, banks are responding by paying out higher annual percentage yields, or APYs, to their customers.

• Best overall high-yield savings account: LendingClub High-Yield Savings
• Best high-yield savings account for no fees: Marcus by Goldman Sachs High Yield Online Savings
• Best overall high-yield savings account from a big bank: American Express® High Yield Savings Account*
• Best overall money market account: Ally Bank Money Market Account

Because of the risk that comes with putting your money in the market, do not invest that cash you are stockpiling to buy a home in four years or less, suggests Douglas Boneparth, a New York City-based CFP, president of Bone Fide Wealth and co-author of The Millennial Money Fix.

"If you have a little more time on your side or are OK with losing some money, you could consider a very low-risk investment portfolio, but there's no guarantee," Boneparth adds.

The stock market offers the potential for much higher returns than the interest you'd earn in a savings account. The average stock market return has historically hovered around 10% per year, while annual percentage yields on high-yield savings accounts in recent months reached just over 4% at best.

But Williams points to the last few years as an example of how volatile investing can be: The sharp decline in the S&P 500 (an index that reflects the overall U.S. stock market) back in February and March 2020 at the onset of the pandemic was unprecedented — and a decline we hadn't experienced since the stock market crash of 1929 during the Great Depression. Trading platform Robinhood points out that it took just 22 trading days for the S&P 500 to drop 30% (from Feb. 19 to March 20, 2020).

"Imagine you have been saving up $100,000 over the last five years to get ready for a down payment," Williams says. "You decided to do this in an investment account. You find the perfect home and then...Covid hits. Overnight, your $100,000 turned into $60,000. Now, you have to either lock in losses to use the remainder to purchase your home or wait for the market to bounce back to purchase."

Knowing your timeline for buying a house will help you determine where you should be putting your money to save for a future down payment. If it's in the short-term (four years or less), keep that money in an FDIC-insured savings account that earns above-average interest and lets you access it should you need to.

For those homeowners-to-be planning further out into the future, you may consider taking on slightly more risk by investing that money in the market to potentially earn a higher return. If you know home ownership is one of your goals, talk to a trusted financial planner well ahead of time, or just stick to a savings account to keep things simple.

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Information about Marcus by Goldman Sachs High Yield Online Savings has been collected independently by Select and has not been reviewed or provided by the banks prior to publication. Goldman Sachs Bank USA is a Member FDIC.

*American Express National Bank is a Member FDIC