Investing money is essential for a bright financial future, and having a mix of short-term and long-term investments is wise.
Long-term investments often include funds you don’t plan on using for decades, like your retirement savings. Short-term investments include funds you plan to use within a few years or in an emergency.
The appropriate balance between the two varies based on your financial goals and risk tolerance, but almost everyone can benefit from having some short-term investments. We’ve found the best short-term investments worth considering.
What is the Best Short-Term Investment to Make Money?
When evaluating your short-term investment options, it’s natural to want a good potential return. However, these investments often come with lower returns than longer-term options.
The good news is that you can still put your funds to work without giving up liquidity for the long term. Below you’ll find some of the top short-term investment ideas.
1. High-Yield Savings Account
While it’s likely not in your best interest to leave a significant amount of funds in a traditional savings account, high-yield savings accounts are different. With a high-yield savings account, you can put your money to work without giving up access to the funds or taking on any risk.
If you are setting aside funds for a big purchase, like a home down payment or vehicle, a high-yield account might be the perfect option. You’ll be able to withdraw the funds you need whenever you decide to move forward with the purchase.
When choosing a high-yield savings account, confirm the financial institution is insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA). With this insurance, your funds will be protected for up to $250,000.
- Insured: Many savings accounts offer insurance. With NCUA or FDIC insurance, your funds are protected for up to $250,000.
- Competitive returns available: You can find annual percentage yields (APYs) above 4.80 percent, which can help you grow your funds.
- Easy access: This is a highly liquid option because you can access your funds anytime.
- Higher investment returns are available elsewhere: It’s possible to find higher returns through other investment products.
- Fees possible: Some savings accounts have monthly fees or minimum balance requirements. Read the fine print before signing up.
Where to invest: As of June 2023, CIT Bank’s Platinum Savings account offers up to 4.95 percent APY. This is typically better than what you will find through your local bank or the best credit union in your area, but you’ll need a balance of at least $5,000 to open this online savings account.
2. Invest with a Robo-Advisor
A robo-advisor can help you build an investment portfolio that aligns with your goals. If you have a short-term investment horizon, you can use a robo-advisor to build a portfolio that meets your needs.
- Hands-off: The robo-advisor will handle the details of building wealth through an investment portfolio.
- Personalized: Robo-advisors can take your unique timeline into account.
- Low-cost: Many robo-advisors have lower transaction costs, so more of your money works for you. Additionally, most don’t have high minimum balance requirements.
- Risk: The investments chosen by the robo-advisor may come with some risk. Make sure you are comfortable with the risks before committing to a particular investment strategy.
Where to invest: M1 Finance makes it easy to invest with the help of a robo-advisor. You can start investing through M1 Finance with a $100 minimum deposit.
3. CD Ladder
With a certificate of deposit (CD), you can earn interest on your funds when you agree to leave the money untouched for a predetermined amount of time.
For example, if you open a 12-month CD, you won’t be able to withdraw the funds until a year passes. If you remove your funds before the maturity date, you’ll pay an early withdrawal penalty.
A CD ladder involves opening several CDs of various lengths. By utilizing several term lengths, you can plan when you’ll receive an influx of cash.
“Before setting up a CD ladder, consider the length of time you want to invest and how frequently you’d like to access your money,” recommended Trinity Owen, Certified Financial Education Instructor and founder of The Pay at Home Parent.
Owens continues, “For example, if you want to invest for three years and have access to your funds every six months, you would create a ladder with six CDs, each maturing at six-month intervals.”
- Personalized: You can build a CD ladder with term lengths that fit your needs.
- Competitive APYs: When you agree to part with your funds for a set amount of time, you might find higher APYs than regular savings accounts offer.
- Not liquid: You can’t access your funds early without paying a withdrawal penalty fee.
Where to invest: Try exploring various top-rate CDs through SaveBetter.
4. Money Market Account
A money market account is a bank account that usually comes with a higher interest rate than a standard savings account. With a money market account, you can access the funds you need at any time.
It’s possible to open a money market account through an FDIC or NCUA-insured financial institution. This means your funds are protected for up to $250,000.
If you don’t want to give up easy cash management, a money market account offers a way to grow your funds while maintaining access.
- Liquid: You can withdraw funds whenever you need them.
- Insurance: Money market accounts can come with FDIC or NCUA insurance to keep your funds safe.
- Not the highest returns: While you’ll receive more than you would with a regular checking account, you could obtain higher returns through a riskier investment product.
- Bank may charge fees: Read the fine print to avoid opening a money market account riddled with fees.
Where to invest: As of June 2023, CIT Bank offers a money market account with a 1.55 percent APY.
5. Short-Term Corporate Bond Funds
Short-term corporate bonds are issued by companies with the goal of raising funds for a project or expense. You can earn interest on the bonds and receive payments regularly, usually on a quarterly or annual basis.
A short-term corporate bond fund includes multiple bonds from a range of companies. With this type of fund, you can avoid putting all your eggs in one basket. Instead, you’ll receive a regular payout from the fund, which collects payments from the underlying bonds.
It’s possible to lose money with short-term corporate bonds, but skipping the individual options in favor of a fund lowers your risk.
- Diversification: You won’t have to research individual companies. Instead, you’ll purchase shares that have underlying bonds from a variety of companies.
- Liquid: It’s possible to sell your shares within a day to get your hands on the cash you need.
- Risk: Since there’s no government insurance on this type of fund, you might lose money.
Where to invest: You can purchase short-term corporate bond funds through a brokerage account like SoFi Investing.
6. Treasury Bonds
The federal government issues treasury bonds. Essentially, the government uses bonds to raise funds. In return, you’ll receive your funds back with interest.
Some treasuries, like Treasury bills, offer maturity dates of up to a year.
While you won’t find government insurance on treasury bonds, the U.S. government has a commitment to repay your funds with interest. Consequently, treasury bonds are considered a safe investment.
- Safe: In general, government bonds are considered extremely safe.
- Liquidity: It’s possible to sell your bonds through exchanges, which means they are relatively liquid.
- Low interest rates: You likely won’t find the highest interest rates through Treasury bonds.
- Inflation: Inflation poses a threat to long-term treasury bonds. However, even short-term treasury bonds could lose purchasing power due to inflation.
Where to invest: You can purchase treasury bonds through Treasury Direct.
7. Roth IRA
A Roth IRA is generally considered a long-term investment choice because this retirement account is designed to help you invest for retirement in a tax-advantaged way. However, you have the option to withdraw your contributions at any time.
With a Roth IRA, you can invest in a wide range of assets. For example, you might invest in stocks or mutual funds.
You can choose to let your funds grow until retirement. But, if you need the funds sooner, you can withdraw your contributions without a penalty. Keep in mind that your earnings may incur taxes and penalties.
- Withdraw contributions without a penalty: While you will pay a penalty to withdraw your capital gains before age 59.5, you can withdraw your contributions at any time without incurring a fee.
- Range of investment choices: You can build a diversified investment portfolio within your Roth IRA.
- Hit to retirement savings: If you withdraw contributions from your Roth IRA now, you may have less in your account at retirement.
Where to invest: You can open and invest in a Roth IRA through M1 Finance.
8. Pay Off Credit Card Debt
Credit card debt can be a significant drain on your finances. With the average credit card interest rate sitting at 20.92 percent as of June 2023, it’s easy to see how carrying credit card debt can eat away at your money.
If you are carrying high-interest credit card debt, paying it down should be a top priority. The money you can save by paying down your credit card debt can make this choice a short-term investment in your long-term financial well-being.
One way to tackle your credit card debt is to consolidate it into a single loan with a lower interest rate. When you consolidate your debt, you’ll have fixed monthly payments and a predetermined timeline to eliminate this debt for good.
Depending on your situation, this could help you save thousands of dollars in interest.
- Lift the burden of debt: Debt can put a pinch on your entire life. While paying off debt fast might not be fun, becoming debt-free is worth it.
- Save money on interest: Paying off your debt quickly and consolidating debt can help you save thousands on interest payments. This is especially true when interest rates rise on your credit cards.
- Challenging: It can be difficult to pay off debt ahead of schedule. However, with the right strategy, you can be debt-free sooner than expected.
Where to consolidate: SoFi offers debt consolidation loans to help you lock in a better interest rate as you pay off credit card debt. Compare potential interest rate offers from multiple lenders before applying for a loan.
9. Peer-to-Peer Loans
Peer-to-peer lending involves investing in a loan for a borrower. With this short-term investment, you’ll earn interest as the borrower repays the loan.
As the investor, you’ll have an opportunity to review loan applications. If you like what you see, you can make an investment to cover a portion of the loan amount.
In general, peer-to-peer loans are considered relatively risky since there is a chance that the borrower won’t repay the loan. But each borrower represents a different level of risk.
Taking a chance on a high-risk borrower might lead to higher returns, while funding a loan for a creditworthy borrower will likely lead to lower rates of return.
- High returns are possible: If you choose a high-risk borrower, you might lock in relatively high returns.
- Repaid monthly: Each month, you’ll receive a payment that includes both principal and interest. This is a terrific passive income idea if you can handle the risk.
- Select loans that make a difference: As you review loan applications, you can choose to fund borrowers who need someone to take a chance on them.
- Risk: Peer-to-peer lending is generally considered risky.
- Lack of liquidity: You can expect to receive your funds on a set repayment schedule. This means you won’t be able to cash out your funds if you need them.
Where to invest: You can find peer-to-peer lending opportunities through Prosper. Within Prosper’s platform, you can choose to invest in loans with borrowers representing a range of high to low risk.
You have questions about short-term investing. We have answers.
What is a Short-Term Investment?
Short-term investments generally have a limited timeline. In most cases, short-term investments last for less than three years.
In contrast, long-term investments might be designed to hold for at least five years, if not more.
Are Short-Term Investments Risky?
Some types of short-term investments are risky, while others are not. For example, peer-to-peer loans tend to carry a significant level of risk. On the other hand, a high-yield savings account or CD is not considered risky.
If you are choosing a short-term investment with high risk, do your research to confirm you are comfortable with the risk before committing your funds.
Who Should Use Short-Term Investments?
Short-term investments are useful for almost everyone. Whether you want to save for a down payment or need relatively easy access to cash, some short-term investment strategies are a key part of a healthy financial plan.
However, this type of investment strategy might not be the right fit if you are focusing on paying off debt.
Short-term investments can help you put your funds to work without giving up access long-term. If you are just dipping your toes into the stock market, short-term investments are a great place to get started.
However, it’s also a good idea to start building your long-term investments, even if you start with less than $500.
What do you look for in a good short-term investment?
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