CreditDonkey is a stock broker comparison and reviews website. This website is made possible through financial relationships with card issuers and some of the products and services mentioned on this site. Advertiser Disclosure†

Updated October 11, 2018

Best Short Term Investment Options

Read more about Investing
Editorial Note: This content is not provided by the card issuer. Opinions expressed here are author's alone, not those of the issuer, and have not been reviewed, approved or otherwise endorsed by the issuer.
This article contains references to products from our partners. We receive compensation if you apply or shop through links in our content. You help support CreditDonkey by reading our website and using our links. (read more)

The best short term investment options provide good returns with low risk. Here are the top 10 strategies for your short term goals.

© CreditDonkey

What is a Short Term Investment?

© CreditDonkey

If you're looking to invest for less than five years, that's considered short term. Short term investments are usually made with specific goals in mind (a dream vacation, wedding, or down payment on a house).

Long term investments are meant for more distant goals like retirement.

With short term investments, you want to make money quickly WITHOUT losing your capital. Skip trendy stocks and options and look for low-risk and modest gain opportunities.

What is an example of a short term investment?
A short term investment is usually an investment of 5 years or shorter. The returns should easily convert to cash when the time is right.

Examples of short term investments are high-yield savings accounts, CDs, money market accounts, treasury bills, and government bonds.

That means more than just savings accounts that provide safety but negligible interest rates. You won't lose money in an FDIC-insured bank account, but you won't make much in return, either.

Keep reading for the top short-term investments to make your short term dreams a reality.

Top 10 Short-Term Investment Ideas

What is short term and long term investment?
A short term investment is usually held for 5 years or shorter. The goal is to grow your money for short term needs (such as for a house down payment). It should be low-risk with small, but reliable, returns.

A long term investment is held for decades (such as for retirement). So it can be riskier since there is time to ride out the ups and downs of the market.

1. Debt Payoff

© CreditDonkey

Investments and paying off debt sound like two different principles. But are they?

Debt costs you money. The average credit card interest rate is 12.77% (and can be up to over 20%). This mean $10,000 in credit card debt can cost you $1,277 in interest in just a year.

It's very hard to find investments that give you that kind of return. In other words - debt will cost you more money than you can earn.

Don't forget, the interest keeps compounding until you pay it off. Before you know it, you've paid thousands of dollars in interest. You could have invested that money elsewhere instead of giving it to your credit card company.

Tip: How does paying off debt help you invest? Consider it an instant return on your investment. Say you saved 10% interest by paying off your debt. That's a 10% return on your investment.

As you pay your debt down, keep these things in mind:

  • Pay more than the minimum. The more you pay off each month, the less interest you pay. As you lower your balance, you'll save on future interest charges. Eventually you'll see a full return on your investment. You then have money you can use on other investments (see below).

  • Consider a balance transfer. Transferring to a 0% APR credit card can help you move the debt faster. You won't pay interest as long as you pay the debt off before the end of the introductory period.

    Many cards charge a one-time balance transfer fee - often around 3% of the transferred amount. To avoid this, here are our top credit cards with NO balance transfer fee. This way, all your money goes straight to paying down the debt.

  • Have a strategy. It's best if you focus on one credit card at a time. Choose the card with the highest interest rate and pay it down. Pay the minimum payment on the rest of your cards.

    When you pay the first balance off, choose the next highest and so on. This helps minimize the interest you pay. It also furthers the return on your investment.

Sample Returns: 7.00% to 20.00% and up, depending on the interest rate charged on your debt

What about student loan debt?. Just like credit card debt, paying off student loan debt is a great investment, since the average interest rate is 4.45% - 9.66%. If paying it off is not an option anytime in the near future, consider refinancing your student loans to a lower interest rate.

What are the best short term investments for small amounts of money?
Even if you have only a little bit of money, you can still invest for the short term. The best options are high-yield savings accounts and money markets. You are guaranteed interest and you can easily withdraw if you need the cash.

2. Online Savings Account

© CreditDonkey

Everyone needs an emergency fund. Credit cards are nice in a pinch. But not if it means putting yourself in debt again.

Big traditional banks often provide the lowest (worst) interest rates - as low as just 0.01%. That's pathetic.

Instead, look for high interest online savings and money market accounts. Online banks have less physical overhead, so they offer much higher interest rates and have less fees.

Are savings and money market accounts the same thing? For saving purposes, they are very similar. Both are limited to 6 withdrawals/transfers a month. The main difference is that a money market account may offer more flexibility. Many offer check writing or ATM access through a connected debit card.

Keep these things in mind when looking for an online savings account:

  • Make sure automatic deposits are free. Many banks offer this service but require a minimum deposit. Read the fine print before making savings automatic. It's a nice benefit if you can do it, but you shouldn't pay for it.

  • Make sure there are no miscellaneous fees. Minimum deposit requirements, inactivity fees, and monthly service fees are a few examples. Many online banks don't charge anything; look for those options when you can.

  • Do you need ATM access?. Some online banks will provide an ATM card that allows you to easily withdraw cash when you need it. Others will only allow you to transfer to a checking account. Shop for the best interest rate combined with the features you need. Check out the Top 5 Online Savings Accounts.

Sample Returns: 1.30% to 2.50%

What is the best investment option for short term?
Short term investments should have little risk and almost guaranteed returns. Safest options are high-yield savings, money market, and CDs.

By definition, short-term goals should not be invested with any risk if at all possible. That said, we've lived through a decade of ridiculously low to no interest on savings accounts, but that has now changed.

Karen Lee, certified financial planner, Karen Lee and Associates LLC

3. CDs

© CreditDonkey

If you don't need your money for a while, consider a Certificate of Deposit. Their interest rates are often higher than online savings or money market accounts.

The downside is you can't touch the money before maturity. If you do, you'll pay a penalty. This isn't always a bad thing, though. You tie the money up and forget about it.

Consider the following when choosing the right CD for your investments:

  • Consider short-term CDs. Usually, the longer you invest your money, the higher the interest rate. But long-term CDs aren't the only way to make a decent return. Many banks offer excellent rates for 12-month CDs. And your money won't be tied up that long.

    CD laddering is another great strategy. Instead of putting all your savings into a single CD, you split it up into different CDs with different terms. Then as each CD matures, you roll it over into a new CD with a new interest rate. This way you get the latest interest rate with each new investment. Of course, this only works during a time when interest rates are on the rise.

  • Pay close attention to the offered rates. It's not unusual to find one bank offering 0.02% APY and another offering 2.50% for the same term. Also, many advertised interest rates require a minimum investment. If you don't deposit that much, you may make much less without realizing it.

  • Know the early withdrawal penalties. Life happens. If you need your funds now, you should know what it would cost. Some banks charge 3 months of interest. Others may charge as much as a full year of interest. It depends on the term of the CD and the bank's requirements.

Sample Returns: 1.10% to 3.00%

Tip: You may also consider brokered CDs. Brokered CDs are bought from a brokerage firm. Brokered CDs are issued by banks and are FDIC insured. However, make sure you understand whether there are any additional fees charged by the brokerage.

A market-linked CD might be an attractive option. Essentially, you purchase a CD where the return is linked to an index that likely includes equity markets both U.S. and foreign and fixed income. If the index does not generate a return, the worst case scenario is that the funds are returned upon maturity with a 0% gain. On the upside, you could easily realize a double-digit return.

Clifford L. Caplan, president, Neponset Valley Financial Partners

4. Online Checking Account

© CreditDonkey

You probably don't think of checking accounts when you think of investments. Your local branch probably offers a laughable interest rate, or none at all.

Many online checking accounts offer slightly higher interest rates, though.

Tip: Online banks may also offer a sign-on bonus. You deposit a specific amount and get a bonus. The money may have to sit there for a few months. But, you may earn several hundred dollars just for opening the account.

Earning $200 for depositing $2,000 into a new account is effectively a 10% return on your investment. It's only a one-time bonus, but it still represents a big return. Check out current bank promotions now.

Before you sign on, keep these things in mind:

  • Know the requirements for the bonus. A specific opening deposit, minimum monthly balance, or automatic deposits are common. Make sure you can meet the requirements in the timeframe to get the bonus.

  • Know how long the money must sit in the account. Some banks also charge a penalty for early withdrawals or account closures.

  • Read the fine print regarding the bank's fees. Minimum monthly balances, monthly service fees, and teller fees are just a few examples. Don't let the fees eat away at the return on your investment.

Sample Returns: 1.30% to 1.55%, plus any one-time bonuses

5. Roth IRA

© CreditDonkey

Roth IRAs are generally for long-term investments: think retirement. But there's a little-known secret: you can use yours if you are in a pinch. We don't recommend using a Roth IRA for the short-term. But it's there if you need it.

Roth IRA funds are after-tax dollars. Since you already paid the taxes, there's no early withdrawal penalty. You get the best of both worlds. You invest for the future and have current liquidity if you need it.

Consider these factors when looking for the right Roth IRA account:

  • You can only withdraw what you contributed. Don't think of your Roth IRA as a part of your "emergency fund." If you withdraw funds before retirement, you may only take your contributions. For example, you invested $4,000, but it grew to $4,500. You may only withdraw $4,000 without penalty or tax implications.

  • Prioritize 401(k). Wait to open a Roth IRA until you max out your employer-matched 401(k) contributions. Your 401(k) is a long-term investment, but matched contributions are money your employer provides directly. Don't cut your retirement funds short.

  • Pay close attention to account fees. Many offer no-fee accounts. This includes no transaction or commission fees. Do your research online to find a reputable company offering these benefits. This helps you maximize the return on your investment.

Sample Returns: 4.00% to 10.00% depending on your investment strategy

Managing your short term investments. If you have quite a few investments scattered in different places, it's smart to have one place to keep track of them all. A free account at Personal Capital will give you access to many financial management tools.

You can link all your accounts to get a snapshot of your financial life all in one place. Their tools include cash flow and spending analysis, fee analyzer, retirement planner, and portfolio performance tracker. You'll also get an overview of your net worth to see what you have and what you owe.

6. Cash Back Credit Cards

© CreditDonkey

Credit card rewards is one of the easiest, fastest ways to make some extra money. The returns can be very good.

Here's how:

Many cards offer sign-up bonuses. You get a cash bonus (or points) if you spend a certain amount within a certain time period. It could look like this: earn $150 if you spend $500 within the first 3 months. That's an amazing return of 30%!

But don't go on a spending spree. Here's a trick:

Charge your normal monthly expenses like utilities, cell phones, groceries, and insurance. You buy these items anyway, so you might as well receive some rewards for paying your bills.

In addition, you can continue to earn cash back rewards for your everyday purchases. As long as you never carry a balance on your card, you can think of your cash back as a short-term investment returns.

Tip: The credit card promotions change frequently. Research the latest offers available and choose the one that fits your needs.

Before you sign up for a cash back credit card, keep these things in mind:

  • Always pay in full each month. If you don't pay the full balance off, you'll pay interest charges. Most cash-back bonuses are 1-3%, whereas most interest rates are in excess of 10%. This means you will lose money overall if you don't pay off your balance in full every month.

  • Watch out for annual fees. The credit cards with bigger sign-up bonuses usually have a sizeable annual fee. But sometimes, depending on how you use your card, your rewards can more than make up for it.

  • You may have other options aside from cash back. Some other options may include airline travel and gift cards. Calculate the return on your investment for each option. For example, on the Chase Sapphire Preferred, 10,000 points equal $100 in cash back, or $125 in travel.

Sample Returns: 1.00% to 3.00%, plus the one-time sign-up bonus

7. Peer-to-Peer Lending

© CreditDonkey

Peer-to-peer lending is when you lend directly to individual people. Borrowers get a fixed interest rate and monthly payments. As they repay the loan, you'll get monthly payments of principal and interest.

Companies like Lending Club and Prosper offer this type of investment with returns as high as 10%. And you can research the investments yourself.

Here are a few things to consider before investing:

  • Choose your risk level wisely. Lending Club, for example, grades borrowers from A to G. Higher grade (A loans) have lower interest rates and lower risk. Lower grade (G loans) have higher interest rates but higher risk of defaulting on the loan.

  • Diversify your risk. You can minimize risk by investing in hundreds of loans at once. Many peer-to-peer lenders require a minimum $25 investment. Even with $1,000, you can invest in as many as 40 loans. If a few default, hopefully the others make up for the loss.

  • You can choose a portfolio. Companies like Lending Club offer a portfolio of loans. Rather than manually choosing one loan, you fund a piece of many loans. You can choose an automatic mix or customize your own portfolio. This helps you stay in control of your risk level and return on investment.

Sample Returns: 3.00% to 9.00%

8. Stocks

© CreditDonkey

Investing in stocks is an aggressive approach. Many investors use stocks as a long-term approach.

But you can invest in stocks for the short-term IF you do your research. The right information and diversification can lead to successful short-term investments in stocks.

Here are some things to consider before investing in stocks:

  • Find stable companies with a history of rising stock prices. Investing in the hottest, new public stock might not be the right choice. Instead, focus on a larger company with long histories like Visa or Wal-Mart. They have a proven history of rising stock prices.

  • Consider discount brokerages. Use online platforms, like E*TRADE, to minimize your brokerage fees. You'll also get online assistance. E*TRADE offers many tools and resources that help beginning investors. Hefty fees only eat away at your earnings.

  • Gauge your risk tolerance before investing. If the amount you invest will make you late on your bills, don't do it. Since this is a short-term investment, you might consider investing just a small amount in stocks.

Sample Returns: 3.00% to 20.00% and up (but this is a risky strategy, so be careful)

If you are considering opening a brokerage account, you must check out these promotions.

Not sure about investing on your own? You can use a robo-advisor, like Betterment, to do the investing for you. Robo-advisors will automatically select and manage investments for you based on your goals and risk tolerance. For short term investments, it's important to have the correct allocation of stocks and bonds, so that your investment grows with the least risk. A good allocation is 50% stocks and 50% bonds.

Is dollar cost averaging a short term investment strategy?
Dollar cost averaging is better for long term investments. This is when you spread out your stock purchases over set intervals, instead of buying in one huge lump-sum at once.

It levels out the risk from market fluctuations over a period of time. Sometimes you'll be buying when stock prices fall. So you need to be in it for the long haul to wait for the market to rise.

9. Short-Term Bonds

© CreditDonkey

Bonds are loans issued by companies or by local, state, or even the federal government. You provide the principal and the company or government pays you interest in return. Long-term bonds carry inflation risk.

As rates increase, bond values decrease. Short-term bonds don't suffer as much. Purchase short-term bond funds or exchange-traded funds (ETFs). These types of bonds usually mature in less than 2 years, which partially protects against inflation risk.

Here are some things you should consider before investing in short-term bonds:

  • Choose which kind of fund. You can choose between bond mutual funds and ETFs. Pay close attention to commissions and other service-related fees.

  • Each type of short-term bond has different tax implications. Corporate bonds pay high interest rates, but the full amount is taxable. Municipal (local government) bonds pay slightly lower interest rates. But you don't pay federal income taxes on your earnings. Depending on your state, you may not pay state taxes either.

  • Make sure you diversify your portfolio. Even though short-term bonds have a low inflation risk, there's still some risk. Try investing in various industries and issuers to diversify your risk.

Sample Returns: 1.00% to 5.50%

Tip: You might want to consider BulletShares. These are ETFs that invest in bonds that all mature around the same time.

Investing in BulletShares is similar to investing in a basket of bonds that all have the same maturity date. This way, you can make this a short-term investment if you're picking a BulletShare with a 1- or 2-year maturity.

However, you're not investing in the bonds directly, which means you're paying fees to the investment manager. And as with any investment other than an FDIC-insured account, you might lose money.

Are high yield investments good for the short term?
High yield investments are risky and could mean high losses. Examples of high yield investments are options trading, preferred stocks, and high yield bonds.

These could give you a high return in a short period of time, but you have to accept the risk of losing money too.

10. Treasury Bills

© CreditDonkey

If safety is your number one priority, consider treasury bill certificates. T-bills, issued by the federal government, are one of the safest investments available.

How they work:
You buy the bond for a discount. Let's say the face value is $100, but you pay $90, a discount of $10. You'd make up the difference in interest and receive $100 at maturity.

T-bills have maturity dates from a week to a year after purchase. $100 is the minimum investment. Risk is extremely low if not zero, but the interest you earn will typically be lower than what you'd make on a CD.

Here are some things you should consider with T-bills:

  • Know how you'll be taxed. Treasury bill interest is exempt from state and local taxes. This helps further the return on your investment. However, you will owe federal income tax on your earnings.

  • Know when to buy. The U.S. Treasury auctions treasury bill certificates off weekly. 13- and 26-week T-bills auction on Mondays. 4-week bills auction on Tuesdays. 52-week bills auction once a month. You find out the discount at the time of the auction.

  • You can reinvest your T-bill proceeds. This helps to continually grow your interest earnings. You can set it up automatically when you purchase the security.

Sample Returns: 1.00% to 2.07%

Note: Short-term investments can be profitable but, as with any investment, there is risk. Weigh the pros and cons for your situation and do your research. No two investment strategies are the same. The earlier you invest is usually for the better. But it's never too late!

Bottom Line

© CreditDonkey

Short term investing can help you accomplish something you wouldn't be able to do otherwise, like pay off student loans or make a down payment on a house or car.

Typically when it comes to investing, the higher the risk, the greater potential for reward. But for short term goals, it's better to shoot for minimal risk and modest returns.

Disclaimer: Opinions expressed here are author's alone. Please support CreditDonkey on our mission to help you make savvy decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved or otherwise endorsed by any card issuer. This site may be compensated through the Advertiser's affiliate programs.

Editorial Note: This content is not provided by Chase. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved or otherwise endorsed by Chase. This site may be compensated through the Advertiser's affiliate programs.

More from CreditDonkey:

How to Invest Money

How to Invest Money


Passive Income


Best Online Savings Account

More Articles in Money Tips


Chase Sapphire Preferred Card
Apply for Chase Sapphire Preferred Card
At Chase's Secure Site
  • Earn 50,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $625 toward travel when you redeem through Chase Ultimate Rewards®
  • Chase Sapphire Preferred named "Best Credit Card for Flexible Travel Redemption" - Kiplinger's Personal Finance, June 2018
  • 2X points on travel and dining at restaurants worldwide & 1 point per dollar spent on all other purchases.
  • No foreign transaction fees
  • 1:1 point transfer to leading airline and hotel loyalty programs
  • Get 25% more value when you redeem for airfare, hotels, car rentals and cruises through Chase Ultimate Rewards. For example, 50,000 points are worth $625 toward travel
  • No blackout dates or travel restrictions - as long as there's a seat on the flight, you can book it through Chase Ultimate Rewards
  • Go to issuer's official application, terms, and details
Intro APR for PurchasesIntro APR for Balance TransferRegular APRAnnual Fee
N/AN/A
17.99% - 24.99% Variable
$0 Intro for the First Year, then $95

Rich Uncles Review

Do you shy away from investing in real estate because it's expensive and complicated? It can be. But Rich Uncles set out to make it less expensive and less complicated. Its mission is to give anyone who wants to try real estate investments a chance.

December
09
2018

EquityMultiple

Think you don't have enough money to invest in real estate? Check out the opportunity that EquityMultiple offers. They are a real estate crowdfunding website.

    Beginner's Guide to Airline Miles and Points

    Learn how airline miles work and 10 steps that you should follow to start collecting travel rewards. Before long, you'll be well on your way to redeeming miles for free flights and hotel rooms.

    Hotel Rewards

    The sign-up bonuses for hotel rewards credit cards can be tempting, but is a hotel card right for you?

    Study: Credit Cards for International Travel

    The best credit cards for international travel have no foreign transaction fees, chip technology and worldwide acceptance. But what's the right travel card for you?

    Airline Rewards

    The best airline credit card racks up miles fast with reasonable fees and amazing rewards.

    Travel Rewards

    Looking for a new travel credit card?

    Foreign Transaction Fee: What to Know Before You Travel Abroad

    Before you go on a trip overseas, be sure you have a credit card with no foreign transaction fees. Read on to learn how to save money on international travel.

    Credit Card Deals

    Applying for a card with a bonus or an introductory offer can be a great way to get a head start on earning rewards or to get a handle on your debt.

    Credit Card Bonus Offers

    Looking for a new credit card? Earn extra cash, reward points, and airline miles with these bonus offers for new customers.

    Dining Rewards

    If you're usually eating out rather than slaving over a hot stove at home, make a point of using a rewards credit card every time you pick up the tab and save up some serious cash.

    Best Credit Cards

    Here are the CreditDonkey picks for "Best Credit Cards" from our partners in the following categories ...

    Credit Card Rewards

    So you've decided you want to earn rewards for your spending but aren’t sure how to pick the right card?

    Credit Card Deals for People with Excellent Credit

    If you have excellent credit, now is the time to take advantage of it.

    No Foreign Transaction Fee Credit Cards

    Most credit cards tack on a 3% charge, or foreign transaction fee, on purchases made outside the United States. If you travel internationally with a no foreign transaction fee credit card, you'll save money on your purchases.

    Study: Hotel Credit Cards for Free Nights

    Must-read list of hotel credit card promotions. Check out this essential list of credit card offers before your next hotel stay.

    Study: Credit Card for European Travel

    Traveling to Europe? Look for a card with chip technology and no foreign transaction fees. Here are our favorite cards for international travel.

    Best Credit Card for First-Time Applicants

    Learn how to get a credit card for the first time. Read this guide to find out which cards are the best and how to avoid common mistakes beginners make.

    Victoria's Secret Credit Card: What to Know Before You Apply

    Do most of your mall visits include a must-have stop Victoria's Secret? Do you have enough VS totes stored away that you could pack your lunch in one every day for a month? If so, the luxury lingerie retailer's Angel credit card might be worth a look.

    Best Chase Ultimate Rewards Transfer Partners

    Find the best way to use each Chase transfer partner. Read this to maximize the value of your Ultimate Rewards points.

    23 Best Ways to Use Chase Ultimate Rewards

    Redeem Chase Ultimate Rewards points for the most value. This guide highlights some of the best redemption opportunities with Chase points and airline transfer partners.
    B737

    How to Earn United Miles Fast

    You don't need to fly a lot to earn a TON of United miles. Read on for 15+ smart ways to earn United miles fast.
More Articles in Investing






About CreditDonkey®
CreditDonkey is a stock broker comparison website. We publish data-driven analysis to help you save money & make savvy decisions.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed on this page are those of the author's alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.

†Advertiser Disclosure: Many of the card offers that appear on this site are from companies from which CreditDonkey receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). CreditDonkey does not include all companies or all offers that may be available in the marketplace.

*See the card issuer's online application for details about terms and conditions. Reasonable efforts are made to maintain accurate information. However, all information is presented without warranty. When you click on the "Apply Now" button you can review the terms and conditions on the card issuer's website.

CreditDonkey does not know your individual circumstances and provides information for general educational purposes only. CreditDonkey is not a substitute for, and should not be used as, professional legal, credit or financial advice. You should consult your own professional advisors for such advice.