Are you saving up for something big in the near future? Whether it’s an emergency fund, a car purchase, a down payment on a house, or a vacation, you might be looking for ways to grow your savings without taking on too much risk. Thankfully, there are plenty of short-term investment options that can help you do just that.
While traditional savings accounts often offer low returns, there are several other short-term investments that provide higher growth opportunities with relatively low risk. Let’s explore some of the best short-term investment options to help you grow your money even if you don’t have decades to wait.
What Are Short-Term Investments?
Short-term investments are designed to be held for a relatively short period, typically less than five years. The goal is to earn a return on your money while keeping the risk low since you’ll need access to the funds sooner rather than later. While riskier options like stocks are better suited for long-term horizons, short-term investments allow you to grow your money without putting it at unnecessary risk.
Here are some of the top short-term investments that strike the right balance between growth and safety:
1. Online Savings Accounts
Looking for a low-risk, highly liquid option? High-yield online savings accounts are a great choice. They often offer better interest rates than traditional bank savings accounts and are typically FDIC-insured, making them a secure place to park your money.
For instance, CIT Bank’s Savings Builder account offers an interest rate of 1.00% APY, which is a solid return for an account that gives you easy access to your money. While you won’t earn a fortune, your money will grow at a reasonable rate compared to a standard savings account.
2. Money Market Accounts
Money market accounts are another great way to earn higher interest rates than traditional savings accounts. They are typically offered by banks or credit unions and can also come with check-writing and debit card access.
While these accounts often require a minimum deposit and can charge fees if your balance falls below a certain level, they are insured by the FDIC (or NCUA if from a credit union), making them low-risk.
3. Certificates of Deposit (CDs)
If you’re looking for a safe, low-risk investment, a certificate of deposit (CD) might be the way to go. With a CD, you commit to locking your money away for a set period, typically ranging from a few months to five years, in exchange for a fixed interest rate. The longer the term, the higher the interest rate usually is.
The main downside to CDs is that your money is tied up for the duration of the term, and withdrawing funds early often comes with penalties. However, for short-term goals, a CD can be a good choice, offering guaranteed returns.
4. Worthy Bonds
Worthy Bonds allow you to invest in bonds that fund loans to U.S. small businesses. With a $10 minimum investment, you can purchase bonds that pay a fixed 5% interest rate, with a term of 36 months. The best part is that you can cash out early with no penalties, offering flexibility along with solid returns.
5. U.S. Treasury Securities
U.S. Treasury bills (T-bills) and notes (T-notes) are government-backed investments with very low risk. T-bills are short-term investments with maturities ranging from 4 weeks to 52 weeks. T-notes have maturities of 2, 3, 5, 7, or 10 years.
T-bills are purchased at a discount, and when they mature, you receive the full face value, earning the difference as profit. T-notes, on the other hand, offer fixed interest rates and make semiannual payments. These are low-risk investments with relatively low returns but can be a safe bet for short-term growth.
6. Treasury Inflation-Protected Securities (TIPS)
TIPS are government bonds that are adjusted for inflation, which means they provide protection against inflation while earning you interest. The principal value increases with inflation, and you earn interest on that adjusted value. While TIPS are typically long-term investments, they can also be suitable for short-term goals if you want a hedge against inflation.
7. Short-Term Municipal Bonds
Municipal bonds are issued by state or local governments and are considered relatively safe. While they typically offer lower returns than corporate bonds, the interest on municipal bonds is often exempt from federal taxes, and in some cases, state taxes as well.
For those in higher tax brackets, municipal bonds can be an attractive option to maximize returns while keeping risk low.
8. Short-Term Corporate Bonds
Corporate bonds are another type of bond that can offer higher yields than government or municipal bonds. They are backed by corporations, making them riskier but also more lucrative. Short-term corporate bonds, with maturities of 1 to 5 years, offer a balance between risk and return, making them suitable for short-term investors.
9. Peer-to-Peer Lending
Peer-to-peer (P2P) lending platforms allow you to lend money to individuals or businesses in exchange for interest payments. While P2P lending offers the potential for higher returns, it also comes with higher risk, as borrowers may default on their loans.
Platforms like Lending Club and Prosper let you choose which loans to invest in, and you can start with as little as $25 per loan. If you diversify your investments across multiple loans, you can minimize risk while earning attractive interest rates.
10. Credit Card Rewards Offers
Although not technically an investment, taking advantage of credit card rewards can be a smart way to earn money from everyday spending. Some credit cards offer substantial sign-up bonuses or cash-back rewards that can be redeemed for travel or other benefits.
Just make sure you can pay off your balance in full each month to avoid high-interest charges that would negate the value of the rewards.
11. Paying Off High-Interest Debt
One of the best investments you can make is paying off high-interest debt, such as credit card balances. If you have a $5,000 balance on a credit card with a 20% APR, paying it off can save you hundreds of dollars in interest annually—more than you’d likely earn from most short-term investments.
Final Thoughts
While short-term investments won’t make you rich overnight, they offer a safe way to grow your money with minimal risk. Depending on your goals, you can choose from various options like high-yield savings accounts, Treasury securities, or even peer-to-peer lending.
The key is to choose investments that align with your risk tolerance and financial timeline. Start early, diversify, and stay consistent with your investments to build a solid foundation for your financial future.
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