Investors with specific short-term goals in mind will often turn towards the best short-term investment options. These investments are usually for less than five years, and the best ones allow for low-risk with modest gains.
Below there are recommendations for five of the best short-term investment options we recommend. These investments can help you generate returns over shorter periods.
Finding the best short-term investment options for your portfolio
Short-term bonds: Bonds can add a level of safety to your portfolio. They are considered reliable short-term investments for risk-averse investors. Short-term bonds come with a variety of maturation dates throughout corporate, municipal, of federal bond varieties. These bonds will provide a consistent rate of return, although that rate will be lower than other types of investments, like stocks.
Certificates of Deposit (CDs): Investors turn to CDs because they come with a lot of safety. CDs are nearly a sure thing. Investors in CDs provide a specific amount of money to a bank for a predetermined length of time. The CD will also have a predetermined interest rate associated with it. Once the length of the CD is complete, the investor receives the principal investment back plus any interest it accrued during its duration. CDs are federally insured, making them very low-risk investments.
The longer the CD’s term, the more money an investor will make through interest. However, for short-term investors, CDs are a great option because the money is guaranteed, and terms can be very short if desired. Investors can even get CDs as short as one month.
Money market accounts: These accounts are similar to savings accounts with a few caveats. First, most money market accounts allow investors to write checks from the account, while that’s not an option for most savings accounts. However, due to federal regulations, you can only write up to six checks each month.
Withdrawals are usually not counted within those six transactions. Money market accounts pay a higher annual percentage yield (APY) on interest than other savings accounts, although they may require a higher minimum balance than savings accounts as well.
High interest-accruing bank accounts: Many traditional savings accounts have very low interest rates that don’t even make them worth investing in. However, there are some savings accounts that come with higher interest rates. Some of these high-interest savings accounts may pay upward of 2.5% yearly. The drawback to high-interest savings accounts is the minimum amount of capital required to open and maintain the account. In some cases, it can be thousands of dollars.
Cash-back credit cards: Credit cards with a cash-back option provide an opportunity to get some money back from your purchases. Using credit cards will not help you make significant money, but it does help you receive small amounts of money back, often on products you buy the most, like dining or gasoline. This type of passive investing is worth considering if you already use credit cards but do not receive any rewards for your purchases.
The best short-term investment options will ultimately come with low risk, although they may also have high liquidity.
What types of short-term investments do you consider the best for your investment process?