Best Short Term Investment Ideas with Examples

Investing is a smart move to secure your future in terms of finances. While some may feel like it’s something that requires long-term commitment, there are definitely many short-term investment options that you can check out. After all, your investment plans will rely on your preferences and capacity to commit at a given period. So if you feel like a short-term investment works for you best, here are some options to get you started.

What is a short-term investment?

Short-term investments are investments that usually yield money in less than one to five years. Sometimes called temporary investment or marketable security, they are more commonly the types of investments that allow you to cash out in three years, or sometimes even less.

Short-term investments are suitable for people who want to earn profits sooner than having to wait for more than five years. However, since the short-term gives you the perk of cashing out in less time, there are significantly fewer returns than long-term investments.

Things to consider in short-term investments

Short-term investment is the way to go when you need the money in a few years. Here are other considerations that’ll help you make up your mind.

  • Highly liquid

Most of the short-term investments are liquid, allowing you to cash out whenever.

  • Low-risk

Many short-term investments are low-risk than a long-term investment since you can easily pull out your investment anytime, as opposed to the latter, which straps you to it for a longer time.

  • Lower potential profits than long-term

Sometimes you can’t have it all, and this applies to investments. This is because the longer time you commit, the more likely it is to yield higher profits. However, short-term investments can still give you a decent profit depending on how much the principal investment is.

Best short-term investment options 

Here are the best short-term investment ideas and examples you need to check out if you are only getting started investing. 

1. Online savings account

If you want to keep your money at the bank, you can open an online savings account that yields higher interest rates than your average checking and savings account. This is the simplest form of investment that will earn you profits passively. It doesn’t require any effort, and most importantly, you can pull out your savings anytime you need to.

Online savings accounts are FDIC-insured for the first $250,000, making it a safe option if you invest a large sum of money. And in terms of interest rates, they typically range from 1% to 2% a year, which is significantly higher than standard savings’. The only downside of keeping your money in an online savings account is that it has fewer earning potential than other options mentioned in this list.

2. Certificate of Deposits (CDs)

CDs are bank deposits that yield high interest due to a lock-in period where you cannot pull it out until the date of the agreement. Banks allow depositors to invest between three to five years. The usual interest rates are 2.15% – 2.45% a year or a five-year CD. This is also backed by FDIC, which provides security for your investment that amounts up to $250,000. 

Certificate of deposits allows you to receive monthly interest payments, or you can wait until the date of maturity and cash in on the amassed interest at the end. However, you should be aware that withdrawing your investment before maturity will earn you a penalty. And this penalty typically costs equal to about three months’ worth of interest or may depend on the bank.

3. Money market accounts 

Money market accounts are similar to high-yield savings accounts as both offer high returns annually. They offer more significant rates compared to any standard savings account. These accounts usually issue a debit card and a checkbook as you open one. However, money market accounts require a minimum deposit amount and limit your number of transactions a month. 

This short-term investment is best if you plan to pull out your investment after one or two years. It is a convenient option that allows you to open an account in a digital bank, traditional bank, a credit union, or a financial service company. FDIC also covers the first $250,000, making it a safe choice for investors like you.

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4. Short-term bond fund

Short-term bond funds are investments in bonds that typically mature in one to three years. Most of the time, private companies and the government issue these short-term bond funds. They mature in terms within two years or less, making it an excellent choice for investors with that preferred timeline.

Bonds are not as stable as money market funds, but it has the potential to earn higher profits than the latter.

5. Treasury securities

The US Treasury issues bonds or treasury securities that are backed by the government’s credit. There are various treasuries, including treasury notes, treasury bills, treasury bonds, floating-rate notes (FRNs), and more. Among the most popular short-term investment options is the treasury inflation-protected securities (TIPS).

These TIPS are marketable securities that are indexed to inflation. These have underlying value based on the consumer price index. The underlying value rises during inflation. And once your TIPS mature, you will receive the adjusted amount or the principal investment, whichever is higher. Its usual interest rates can go from 1.9% up to 2.4%.

6. Municipal bonds

Municipal bonds are bonds issued by local, state, or government agencies. Often, these bonds are exempted from interest taxes. They are riskier than bonds like TIPS and other treasury securities, but it offers a higher potential yield. 

You can get up to 4% returns with municipal bonds. However, if the interest rates spike, the bond value decreases to compensate. But this decrease in value can only be felt if you sell before the date of maturity.

And these are six of the best-term investment options you could check out when starting to invest. So long as you’re fully committed to maintaining and growing your investments, you are mere steps away from having financial security

Need more help in building your investments? Check out these well-recommended Skill Success courses to help you meet your financial goals:

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