Looking for the best short term investments for your cash?
Investing money short-term can be a great way to park money while you are trying to save, all while remaining safe and easily accessible.
A short-term investment is a great alternative to traditional savings accounts or investing money in the stock market. It’s usually pretty low risk and you don’t have to wait 5-10 years for a return.
Short-term investing typically yields lower returns than long term investments. But you are able to save your money with little to no risk, all while building some interest!
1. High Yield Savings Account
A high yield savings account is great for those who want to earn interest on your savings over the next few months or years, but don’t want to risk losing any of the principal. With a high yield savings account, you’ll earn a relatively small amount of interest just for keeping your money on deposit.
Sure, the investment returns of an online savings account is pretty low (interest rates are typically 0.3% to 1.5%), but there are some great perks to this method:
- Little to no fees
Many banks offer competitive interest rates with little or no charges
- No risk
Savings accounts are FDIC-insured, meaning your money is protected
- Instant liquidity
It’s easy to cash in your investment quickly
The downside to a high yield savings account is that there is interest rate risk, the yield can fluctuate at any time. So, you are not guaranteed a fixed annual percentage yield.
Best Short-Term High Yield Savings Account
Varo Online Savings Account
Earn up to 5.00% APY on savings account if you receive direct deposits of $1,000 or more each month and maintain a balance under $5,000.
Still earn 0.50% APY on savings account if you don’t meet the requirements.
2. Money Market Account (MMAs)
A money market account is a type of interest-bearing account offered by a bank or credit union.
This is not to be confused with a money market mutual fund. To put it simply, a money market account is a savings account, while a money market mutual fund is an investment product.
The money you deposit in a money market account earns interest at a variable rate, though the annual percentage yield (APY) tends to be higher than typical checking accounts or savings accounts.
The pros of money market accounts:
- Low risk
Your money (up to $250,000) is protected and FDIC-insured.
Easy access to your money; banks often offer debit cards and ATM cards/access.
You can link your debit account and transfer money at any time, though there is a monthly limit to how many withdrawals you can make.
The cons of money market accounts:
- Minimum deposit & balance requirements
This really depends on the bank, but some require a certain amount to access the better interest rates.
- Transaction limits
You can typically only make 6 withdrawals per month.
Best Short-Term Money Market Account
Check out our article on Money Market Accounts vs. Savings Accounts for more info.
3. Short-term bond funds
For short term investments with money you’ll need in, say, 1-3 years, short term bonds are a safer alternative than buying stocks. There are several different types of short-term bonds:
Government bonds are not FDIC-insured. You still run the risk of bond values depreciating. But with the risks, comes the potential to a higher yield.
Why short-term bond funds are a good choice:
- Low risk
Offer lower risk for rising or falling interest rates than many long-term investments, however the yield is still modest.
- Instant liquidity
With short-term bond funds, you have easy and quick access to your funds, unlike some savings accounts, like CDs for example.
However, on the contrary:
- Interest rate risk
Your bond values have the potential to lose value if interest rates rise.
- Not FDIC-insured
Your money is not FDIC-insured, and therefore you are at risk of losing money.
4. Cash Management Account (CMAs)
A cash management account is similar to a checking or savings account, but it is offered by brokerage firms, robo-advisors, and other non-bank institutions and interest yields range from .05% to up to 1% (all depending on your cash deposit amounts). What makes cash management accounts so appealing is their convenient banking and money accessibility.
The highlights of cash management accounts:
- Extended FDIC-insurance
Your cash is protected up to and over $250,000
You can move your savings easily into investments in the same brokerage and easily access your money
And the cons to consider:
- Fees & Requirements
Your cash management account may have monthly fees or minimum balances requirements.
- Lower interest rates
You could potentially earn a higher yield in other savings accounts, CDs, etc.
Best Short-Term Cash Management Accounts
5. Certificates of Deposit (CDs)
A certificate of deposit is like a savings account that builds interest for a set period of time. The deal is that for the set time you choose, you cannot touch the cash. If you do, you’ll likely have to pay penalties and/or lose all the interest accrued.
With a certificate of deposit, you will have a pre-set interest rate when you lock your money away for a set term. The set terms can range from 3 months to 5+ years. The longer you stow away your cash, the higher your interest rate and the greater the return.
However, if you should need to withdraw your cash, you will pay a penalty. Additionally, certificates of deposit often require a minimum deposit requirement. CDs offer a potential interest rates up to 2%.
Here’s why a certificate of deposit might be a great choice for a short-term investment:
FDIC-insured and guaranteed returns
- No fees
CDs don’t usually charge monthly maintenance fees – however, they do charge penalties for early withdrawals
- Higher yields
Certificates of deposit can have higher yields than other short term investments, depending on how long your terms are
Cons to think about:
You won’t have access to your funds in a CD until the CD matures
Certificates of deposit charge a penalty for withdrawals before your CDs maturity date, so you need to be certain you will not need the funds for the entirety of the term.
Best Short-Term Certificate of Deposit Rates
CFG 12 Month CD
CFG Bank offers a 3.01% interest rate and 3.05% APY on their 12 month certificate of deposit accounts. This is very high compared to most short-term CDs!
Minimum deposit requirement and minimum daily balance: $500
When choosing the best short-term investment, consider:
- the risk you’re willing to take to yield a return
- when you will need your investment
- your current financial situation