Smart Short-Term Investments
Short-term investments offer you the opportunity to grow your money, while protecting it, too, since you’ll probably want to access it within the next five years. This means contemplating very different vehicles than when you’re investing for retirement and other long-range goals because you don’t have as much time to ride out any market lows. It’s normal to feel intimidated by all the choices out there, and maybe you don’t feel like you have the financial skills you need for making decisions. Consider these ideas for smart short-term investments that have growth potential, combined with safety and stability. They’ll help you avoid investing mistakes.
Money Market Accounts
Money market accounts are similar to regular savings accounts, and they’re FDIC-insured. When you open this kind of account, you’re investing in the market for short-term debt, so you earn higher interest than a standard savings account. Money market accounts give you easy access to your funds, often via debit cards and checks. Minimum required investments can be in the thousands of dollars, but shop around because there are accounts available with much lower minimum deposits.
High-Yield Savings Accounts
High-yield savings accounts may be available at your local bank or credit union. With rates of one percent or higher, high-yield savings accounts blow away the interest rates on traditional savings accounts, especially the ones offered by online banking institutions. Like money market accounts, they also offer easy access to your funds and are FDIC-insured. The good news is the minimum deposit requirements are not high. The bad news is that the interest rates are still quite low.
Certificates of Deposit
Certificates of deposit, known as CDs, are short-term investment vehicles that put your money away for a set period of time at a specified interest rate. Banks and credit unions offer a number of options for term lengths, usually three months to five years. The longer the term, the higher the interest rate. CDs are FDIC-insured, and the interest rates are typically higher than what you’ll find with a savings account, but you can’t access your money until the term is up without paying a penalty.
Short-Term Bond Funds
If you know you can live without your money for at least 18 months, think about a short-term bond fund. These are a type of mutual fund that deliver higher returns than CDs, high-yield savings accounts and money market accounts, but they’re generally not as stable as those investment vehicles. They’re a bit more risky and you’ll have to meet minimum investment requirements, but you can still have access to your money and the opportunity for more growth.