Long-term investing is essential for compounding gains and building wealth over the years. However, it’s equally crucial to maintain liquid assets for immediate needs. In today’s financial climate, many investors are gravitating towards the best short-term investments that offer reduced risk and ensure access to their cash when required.
What Do Short-Term Investments Mean?
Short-term investments are financial instruments that are designed to generate returns over a relatively brief period, typically less than a year. They are chosen primarily for their safety, liquidity and potential to earn interest or dividends without tying up investor funds for long durations. The primary goal is to protect capital with a secondary goal to produce modest yields.
10 Best Short-Term Investments
If you’re looking to rein in your riskier investments and keep your wealth liquid, these are the best short-term investments you should consider.
1. High-Yield Savings Accounts
High-yield savings accounts are savings accounts offered by banks and credit unions that offer higher interest rates than traditional savings accounts.
Who it’s best for: Those looking for a low-risk investment with guaranteed returns and who may need access to their money without severe penalties.
Why we chose it: With rising interest rates, these accounts offer a blend of safety and respectable returns.
How to open: Approach reputable banks or credit unions offering competitive rates and open an account.
Advantages and Disadvantages
In a high-yield savings account, your deposits are fully insured, and you can easily access your cash, with up to six free transfers or withdrawals per cycle. However, be aware that inflation might diminish your gains over time. Additionally, some banks may have fees or require a minimum balance.
2. Short-Term Corporate Bond Funds
Corporations issue bonds to raise money, and in return, they pay interest on the principal. When you buy corporate bond funds, you’re investing in debt issued by many different companies.
Who it’s best for: Investors seeking higher yields than government bonds with a relatively moderate risk profile.
Why we chose it: Provides a balance between yield and risk, especially for those wary of the stock market’s volatility.
How to buy: Purchase through brokerage accounts or directly from mutual fund companies.
Advantages and Disadvantages
Corporate bonds often provide higher yields compared to government-issued bonds and are highly liquid assets easily traded on financial markets. However, these elevated returns are accompanied by increased risks and higher tax implications.
3. Money Market Accounts
Money market accounts combine the strengths of both checking and savings accounts, blending high yields with functionalities like check-writing and debit card usage. Currently, the top-tier money market accounts offer impressive rates, sometimes reaching around 4.50%.
Who it’s best for: Investors looking for a mix of accessibility and better returns than regular savings accounts.
Why we chose it: These accounts provide a blend of liquidity and enhanced returns, especially with the current high-yield offerings.
How to start: Research and approach financial institutions offering competitive rates for money market accounts.
Advantages and Disadvantages
Money market accounts offer comparatively high yields and provide easy access to your funds. However, some of these accounts come with high minimum balance requirements and might impose restrictions on the number of withdrawals.
4. Certificates of Deposit
CDs are specialized savings deposits that provide higher interest rates than standard savings accounts, but investors need to commit their funds for a designated term. These terms can range from a few months to over a decade, though six months to five years are most common. The longer the commitment, the more lucrative the yield.
Who it’s best for: Investors looking for a safe, fixed-term investment with predictable returns.
Why we chose it: CDs offer guaranteed returns over a specified period, usually higher than regular savings accounts.
How to open: Approach financial institutions that offer CDs with attractive interest rates.
Advantages and Disadvantages
CDs are FDIC-insured, ensuring the safety of your investment. They also come in a variety of maturities. However, early withdrawals can result in penalties.
5. Cash Management Accounts
Offered by online brokers and robo-advisors, cash management accounts allow investors to merge their everyday funds with their investment money.
Who it’s best for: Those who desire seamless management of their day-to-day and investment finances in one platform.
Why we chose it: These accounts offer convenience by merging checking and investment capabilities.
How to set up: Engage with online brokers or robo-advisors that provide cash management account services.
Advantages and Disadvantages
These accounts provide easy access to both checking and investment funds from a single place. On the downside, they often have lower interest rates compared to high-yield savings accounts.
6. Treasuries
Treasury bonds, notes and bills are debt instruments that pay fixed rates in exchange for locked deposits of varying terms, just like CDs and corporate bonds. But instead of loaning money to a bank or a company, you’re loaning it to the government when you buy T-bills, T-bonds and T-notes.
Who it’s best for: Conservative investors seeking secure, government-backed investments.
Why we chose it: Treasuries are backed by the U.S. government, making them one of the safest investments globally.
How to buy: Purchase through the U.S. Treasury Department or through financial brokers.
Advantages and Disadvantages
Treasuries are backed by the full faith of the U.S. government and offer a broad range of terms, from a few months up to 30 years. They’re also generally tax-exempt. However, they might yield less than corporate bonds.
7. No-Penalty Certificates of Deposit
A no-penalty certificate of deposit allows you to avoid paying typical bank fees if you opt out before the CD matures. In general, CDs offer higher returns than money market accounts and savings accounts.
Who it’s best for: Investors seeking flexibility in their term deposits.
Why we chose it: These CDs provide the benefits of traditional CDs without the drawback of early withdrawal penalties.
How to open: Seek financial institutions that provide no-penalty CDs with competitive rates.
Advantages and Disadvantages
No-penalty CDs are FDIC-insured up to $250,000 and offer the flexibility of penalty-free withdrawals. However, they might offer lower interest rates and fewer term options than traditional CDs.
8. Money Market Mutual Funds
While money market mutual funds sound similar to money market accounts, they’re very different. A money market mutual fund allows you to invest in a pool of securities, such as municipal securities or corporate debt securities. These types of investments typically provide higher returns than other interest-bearing accounts.
Who it’s best for: Investors looking for better returns through diversified short-term securities.
Why we chose it: They offer a potential for higher returns by pooling investments in various securities.
How to start: Engage with financial institutions or brokers offering money market mutual funds.
Advantages and Disadvantages
Money market mutual funds offer convenient access to funds and a potentially high return on investment. However, unlike traditional bank accounts, deposits in these funds are not federally insured.
9. Peer-to-Peer Lending Platforms
Peer-to-peer lending platforms allow individuals to lend their money to other individuals or small businesses online, typically generating higher returns compared to traditional bank investments. These platforms act as intermediaries, making the lending process efficient and simplified for both lenders and borrowers.
Who it’s best for: Investors who are willing to take on a bit more risk for potentially higher returns than traditional banking options and want to diversify their portfolios beyond traditional securities.
Why we chose it: P2P lending platforms often offer competitive returns that can outpace many traditional interest-bearing accounts. They also provide an opportunity to support small businesses or individuals.
How to lend: Join a reputable P2P lending platform, create an account and start funding loans based on your risk tolerance and investment goals.
Advantages and Disadvantages
While P2P lending can offer attractive returns and a unique way to diversify one’s portfolio, it’s essential to remember that these loans aren’t insured. This means there’s a risk of default, where you might not get your money back.
10. Short-Term Municipal Bonds
Short-term municipal bonds are debt securities issued by local governments, cities or counties to finance public projects like schools, highways and water systems. The interest income from these bonds is typically tax-free at the federal level, and sometimes at the state and local levels too, if you reside in the issuing state.
Who it’s best for: Those looking for a tax-advantaged investment option with a relatively low risk, especially investors in higher tax brackets.
Why we chose it: Short-term municipal bonds combine the safety of a government-backed security with the tax benefits that can increase the effective yield, particularly for those in higher tax brackets.
How to buy: These bonds can be purchased through brokerage accounts or directly from the issuer during the initial offering.
Advantages and Disadvantages
Short-term municipal bonds offer tax-free interest and relatively low risk. However, they might offer lower yields compared to taxable securities of similar maturity and quality. Also, if interest rates rise, bond prices can fall, impacting those who sell before maturity.
Takeaway
Short-term investments don’t offer the potential of dramatic gains over time like stocks and mutual funds — but they avoid the risk associated with equity investing, as well. Most experts recommend a blend of both long-term investments with money that you can afford to lose and short-term investments for cash on hand.
FAQ
Here are the answers to some of the most frequently asked questions about making short-term investments.- What is the best short-term investment at the moment?
- Some of the best short-term investments are high-yield savings accounts and money market accounts due to their balance of decent returns, low risk and high liquidity.
- Where should you invest $10,000 for 6 months?
- If you're looking to invest $10,000 for only six months, consider more liquid and lower-risk options such as:
- Money market accounts
- High-yield savings accounts
- No-penalty certificates of deposit
- These provide a good balance between earning some interest and ensuring that the principal remains secure and accessible.
- If you're looking to invest $10,000 for only six months, consider more liquid and lower-risk options such as:
- What is the best thing to invest in for a quick return?
- For a quick return, many investors look at short-term corporate bond funds or money market mutual funds. However, it's essential to remember that with higher returns, there usually comes higher risk. Always research thoroughly and consider your own risk tolerance.
- How can you double $10k quickly?
- Doubling an investment quickly comes with significant risks.
- The stock market, particularly individual stocks or volatile sectors, might offer substantial returns, but they can also lead to substantial losses.
- Cryptocurrencies have also been known for their high returns and high volatility.
- Always research and consult with a financial advisor before making significant investment decisions. Remember, if something sounds too good to be true, it probably is.
John Csiszar, Andrew Lisa and Lydia Kibet contributed to the reporting for this article.
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.