Short-Term Investments

“ Investing puts money to work. The only reason to save money is to invest it.” Grant Cardone

Experienced investors like Warren Buffett advise the masses to invest long term. In most cases this is true. However, every investment you make does not have to be long term. There are times when you may want to generate extra cash for events like planning a vacation or preparing to make a big purchase.

Most traditional banks pay only 0.01% interest. When you are trying to save money or invest in your future, rates like this can be discouraging. So, let’s figure out how to put your money to work so that you may reach your savings goals.

Short-Term Investment

Investopedia defines short-term investment as anything that will be converted to cash within 12 months. Short-term investments ensure that the investor’s money will not be tied up for an extended period of time. Due to liquidity, short-term investments are also considered to be less risky than long-term investments. Liquidity can be explained as to how quickly an asset can be converted into cash.

Types of Short-Term Investments

There are a few options to choose from when deciding on the right short-term investment vehicle. Each short-term investment vehicle should be FDIC insured.  Keep in mind that all banks are different. Therefore, you should research well before selecting the right investment for you.

Online Savings Account – Online savings accounts offer higher interest rates than traditional savings accounts. The average interest rate of a traditional savings account is 0.01% vs. the average interest rate for an online savings account is 1.65%. Online savings accounts also provide easy access to your money. Some online savings accounts may require a minimum deposit amount. One downside to online savings accounts is that there are no physical branches.

Money Market Account –  Investopedia describes the money market account as, “an interest-bearing account that typically pays a higher interest than a savings account.” Money Market accounts allow the owner to write checks or make payments using the funds in the account. The money market account gives its owner some sort of flexibility. This account often requires higher entry- minimum deposits.

Certificate of Deposit (CDs) – A CD usually requires the highest minimum deposit amount of all three. The CD also has the most restrictions and less flexibility. A CD is a savings tool that pays a specific interest rate on a specific date. The specific date is called the maturity date. Funds will not be paid back to the investor until the maturity date is reached. The maturity date can be set for one to ten years into the future. In other words, once the CD reaches its maturity date, you will get your initial investment back.

Each of the short-term investment tools is beneficial in its own way. It’s up to you to use each investing tool to serve you best.

Wrap Up

Short-term investments can be a great tool to help inflate your savings goals. The benefits of short-term investments are low risks, more liquidity, and easy access. Take time to decide which short-term investment options may fit your upcoming goals best.