I have $65,000 that I need to invest but I want to make more than the bank is offering. Where is the best place I can invest my money right now and get a high return on a short-term investment with limited risk?
The Federal Reserve lowered short-term interest rates to 0% for several years. Just recently, the Fed began increasing rates, but the Federal Funds rate is still a paltry 0.33%
With that, short-term bond rates are still below 0.5% and in several European countries, rates are actually negative! That means that people, companies, and governments mostly, are PAYING the bank to hold their cash.
This all makes short-term investing very difficult. Gone are the days when your grandmother could buy savings bonds and earn a nice income.
Savings accounts yield next to nothing -my bank is still paying 0.1%!
To get any type of return today, you need to accept more risk than you may have in the past.
That’s why I’m particularly intrigued by cryptocurrency savings accounts, and why I’ve parked a small amount of short-term cash in Blockfi where I earn 7.25%. Unfortunately, the SEC made headlines when it started cracking down on these type of accounts so new investors can’t get access to these accounts currently with BlockFi but there are still options. So the question remains…
At the end of the day it ultimately depends on two important factors:
- What is your goal with the money?
- What do you define as “short-term”?
The first is pretty simple to answer. But “short-term” could be different for many reasons. Are you trying to invest for 6 months? or 1 year? 3 years? Maybe 5?
Your investing time horizon will largely influence which of the ideas in this article will be best suited for you. Either way we give you several options to consider.
Here are the best short-term investments to put your money in 2022 – whether that’s investing $10,000 or investing $100,000 – with little or no risk while knowing their money is not going to be tied up for long periods of time.
Sneak Peek: Our Top 3 Best Short-Term Investments
- Earn up to 8.05% in a cryptocurrency savings account
High Yield Savings
- Discover Online Savings: 1.50%
Money Market Accounts
- CIT Bank: 0.85%
What I Look For In Short-Term Investments
The typical short-term investment is expected to grow for several months to a few years and can be turned into cash or other short-term investments once they reach maturity.
I look at short-term investments as a way to protect cash that I may want to use productively at some time in the future. I don’t want to lose money, so I’m not willing to take large gambles with it.
A quality short-term investment must have:
- Stability – Small historical risk of losing money over any short time period. Stocks don’t work here for me.
- Liquidity – I want to be able to easily and quickly access the investment and turn it into cash. Real estate is an example of an investment that is not liquid.
- Low transaction costs – The cost of getting into or out of the investment should be very low to 0.
(In the investing world, “long term” investments are really long term — often decades — which leaves room for short-term investments that can still last several years. Here’s a look at some of the best long-term investments you can consider.)
There are various short-term investment accounts available to you, and which is right for you depends on your particular situation and preferences.
Top 12 Best Short Term Investments That Limit Your Risk
- Crypto Earn Account
- Bank Savings Accounts
- Money Market Accounts
- Alternative Investments
- Certificate of Deposits (CD)
- Roth IRA
- Checking Accounts
- Short-Term Bond Funds and ETFs
- 5-Year Treasury Inflation-Protected Securities
- Municipal Bonds and Corporate Bonds
- Pay Off High-Interest Debt
- Cash Back Rewards Offers
- Bonus Idea: Prosper
1. Crypto Earn Account
Let’s face it, you’re not going to earn anything in a bank savings account. That’s why, to me, of all the items on this list, getting into cryptocurrency savings account actually seems the sanest, and I have parked a significant amount of short-term funds in this account. Stick with me here.
With crypto exchanges like BlockFi and Gemini, you deposit some cash by buying a stablecoin (not actual cash). A stablecoin trades 1:1 with the dollar so you can always exchange 1 stablecoin for 1 US dollar. Your money is accessible at any time so it is very liquid.
Gemini makes loans to other parties, like a bank does, except the loans are in cryptocurrency.
Gemini is able to pay you up to 8.05% per year back in stablecoin (they have USDC and GUSD), which can be exchanged back for US dollars.
8.05% is well over 16 times what you will get at the bank. So what’s the downside?
Having a cryptocurrency savings account is not the same as having a savings account at your bank. There is no FDIC insurance on your money like with a regular bank. There are also concerns about digital theft.
Gemini does have its own insurance of deposited funds that can guard against theft or other problems, but it is not very easy to figure out how it specifically differs from FDIC insurance.
Despite these risks, I believe Gemini is a viable bank alternative. If interested, I recommend placing a small amount of cash (not all of it) into an account and increasing from there based on your comfort level.
Cryptocurrencies are here to stay, and this seems like the next evolution in banking, but be prepared for some bumps along the way.
2. Online Savings Account
If you’re looking for a risk-free way to earn some interest on your money, a high yield savings account might be your answer. With these accounts, you’ll earn a nominal amount of interest just for keeping your money on deposit.
Other than opening your account and depositing your money, this strategy requires almost no effort on your part, either. The best high yield savings accounts offer competitive interest rates without charging any fees.
I recommend you take a look at the following savings accounts:
3. Money Market Account
The best money market accounts are currently paying a very close APY to one-year CDs and still have immediate access to their funds. These accounts provide depositors with ATM cards, checks, and deposit slips.
Money Market accounts are based on the account balance, not the length of time you invest your money.
All of these factors combined are why many people consider money market accounts as a type of “savings account on steroids.”
While there isn’t much risk involved, you can potentially secure a higher rate of return.
4. Alternative Investments
Alternative investments are part of a healthy and diversified portfolio. The problem is that many alternative investments aren’t very liquid and require a holding time of at least a few years. For example, real estate is a classic alternative investment. But unless you’re flipping houses, the investor is in it for the long haul.
This is why I’m excited about a couple of new short-term peer-to-peer investment ideas, which I’ve described below. These investments are still considered alternatives, because they operate outside the stock market, but lucky for us, they don’t come with a 10-year timeline!
Fundrise offers online, low-cost ETFs for real estate. Each investment acquires and manages individual real estate properties.
- Minimum Deposit: $500
- Expected Return: 8-12%
With Lending Club, instead of buying shares in a company, you lend your money to individuals or businesses. They pay you back with interest!
- Minimum Deposit: $25
- Expected Return: 4-7%
With Worthy Bonds, you invest in small businesses by purchasing their bonds. The investor (you) receives a fixed 5% interest.
- Minimum Deposit: $10
- Expected Return: 5% fixed
5. Certificates of Deposit (CDs)
With a Certificate of Deposit (CD), you deposit your money for a specific length of time in exchange for a guaranteed return no matter what happens to the interest rates during that period.
Be sure and buy your CD with an FDIC-insured financial institution (up to $250k is insured). The longer the term of investment, which ranges from 3 months to 5 years, the higher the yield will usually be.
In my opinion, CIT Bank offers the best CD product. There is no penalty for withdrawing early on their 11-mo CD, and yet the rates are still competitive (1.25% as of 6/16/22)
Or, click on your state below to see the best rates in your area!
6. A Roth IRA
A Roth IRA is funded with after-tax income; therefore, you are free to withdraw the contributions you made at any time. Remember, you cannot withdraw the earnings, or else you will be fined!
In other words, you can open a Roth IRA (recommendations below) and invest in mutual funds, ETFs, bonds, etc. to get a return on your money.
This money will grow regardless, perhaps until you retire, but if you want it to grow for a short period of time, you are free to withdraw the contributions, which, if the market does well, will be worth more in value than what you invested.
Some of our best places to open a Roth IRA include:
|M1 Finance||Active||$0 trading fees|
|Betterment||Hands-Off||Up to 1 yr. free management|
|E*TRADE||Active||$0 trading fees, up to $2,500 bonus|
7. Online Checking Accounts
Just like online savings accounts, an online checking account can also serve short-term investment needs.
You get many of the benefits of online savings accounts with even more liquidity because the number of withdrawals isn’t limited.
And the best part is, online checking accounts tend to offer cash bonuses! Which certainly helps sweeten the deal, especially with interest rates remaining low.
Check out our recommendations on where to open an online checking account today:
8. Short-Term Bond Funds and ETFs
Short-term bond funds are products that are usually only managed by a professional financial advisor.
Bonds are not as stable as money markets, but they do offer the potential to earn a higher yield.
These bonds are a product of the market and will payout according to the market’s current condition in fluctuating monthly payments.
Short-term bonds usually mature in terms within 2 years or less, which can make them an ideal choice for investors with that type of timeline.
Where to buy bonds? I recommend any one of the following brokerages:
|TD Ameritrade||$0/trade||Up to $600 cash bonus|
|E*TRADE||$6.95/trade||$0 trade fees, up to $2,500 bonus|
|M1 Finance||Free||$10 bonus|
Learn more about each brokerage here:
9. 5-Year Treasury Inflation-Protected Securities
Treasury Inflation-Protected Securities, also known as TIPS, are government bonds that are indexed to inflation.
The interest rate on TIPS is fixed, but the underlying value of the security rises with inflation as measured through the Consumer Price Index.
You might only get 0.5% in interest (paid semiannually), but over five years, the value of the bond might increase by 2.5% per year.
The result is, at the end of the term, your initial investment will be worth as much as it was when you first invested. However, you will earn a small bit of interest on top of it.
You can buy TIPS directly from the government at TreasuryDirect.gov. However, due to TIPS interest being taxable, most investors prefer to invest in a TIPS ETF or mutual fund.
To purchase shares of an ETF or mutual fund, you will need a brokerage account.
10. Municipal Bonds and Corporate Bonds
Municipal bonds are slightly more risky than TIPS and other Treasury investments, yet a majority of municipalities do not default on their bonds.
The more significant risk is “interest rate risk.” In a low-interest-rate environment, if rates rise in the marketplace, the value of the bond decreases to compensate.
If you could get 4% on a municipal bond today, that’s a great return. But if rates go up and your bond loses 6% of its value, you’re suddenly on the losing side of the equation. However, the decrease in the value of the bond only impacts you if you sell before maturity.
If you hold the bond to maturity, you will get 100% of your initial investment back plus the interest yielded to you.
Corporate bonds are even riskier than municipal and Treasury bonds because they are not backed by a state, local, or Federal government.
As always, increased risk can mean an increase in your rate of return.
The same interest rate risk issue applies to corporate bonds; holding to maturity will eliminate this one piece of risk.
11. Pay Off High-Interest Debt
Looking for a great return on your investment? Pay off your high-interest debt.
If you have a credit card with a 15% interest rate carrying a $10,000 balance, you have an opportunity for a great return on your investment.
If you pay off that debt, it is like getting a 15% return on $10,000.
Not only are you getting a great return on investment, but you’re also saving money from future costs and bettering your overall financial situation. It’s the ultimate win-win.
You can pay off high-interest debt on your own.
Credit Card Debt
Credit card debt is slowly creeping up in America as consumers feel stretched at the end of the month.
If you have credit card debt, I highly recommend putting a strategy in place to pay it off as soon as possible.
Interest rates are near historic lows, so if you haven’t yet refinanced your mortgage, now is a great time to do so.
If you can save 0.50% or more on your loan, you’re potentially adding tens of thousands of dollars back into your pocket. Not many investments can beat that.
Student Loan Debt
Don’t have a mortgage? Chances are good you have student loans, so be sure and refinance if you qualify, it could save you thousands over the long run!
The math when paying down debt is simple – if your loan is currently at 7% and you refinance at 3%, that’s equivalent to a 4% return on your money!
12. Cash Back Rewards Offers
Although investing $65,000 has little to do with credit card rewards, we wanted to include this tip from our resident credit card expert, Holly Johnson.
If you really want to earn some easy money in the short term, Johnson says, “credit card rewards can offer epic returns with almost no effort on your part.”
Here’s how it works:
Let’s say you signed up for the Chase Sapphire Preferred® card to score the huge signup bonus.
The current offer will award you with 50,000 points worth $500 after you spend $4,000 on the card within 90 days. And since the $95 annual fee is waived the first year, you can earn this bonus without paying anything out-of-pocket to do so.
Are you with me so far?
To make the most of an offer like this one, you’ll want to meet the minimum spending requirement with stuff you were going to buy anyway.
Think groceries, gas, and your regular monthly bills. Then you’ll simply pay off your card right away to avoid credit card interest.
It’s as simple as that.
Bonus Idea – Prosper
Prosper does not set a specific interest rate for borrowers.
Instead, the website connects borrowers and lenders through online auction-style bidding.
This setup allows lenders to be more in control of their monthly income since they only accept interest rates they are comfortable with.
Borrowers list their loan and the highest amount of interest they are willing to pay.
After that, lenders bid the interest rate down based on the lowest amount of interest they are willing to accept.
This feature provides the stability of a predictable, high yield income on the notes.
If you need more info, check out our review post on investing with Prosper.
The Bottom Line
If you’re looking for a place to sock away some cash for the short term, don’t be afraid to think outside the box.
Thanks to the constant evolution of the world wide web, you shouldn’t have trouble investing your funds in any number of innovative online platforms.
As I shared above, however, short-term investing is much different than investing for the long haul.
When you need to invest your money for only several weeks or months, you don’t want to pour cash into investments that aren’t easy to liquidate, charge fees for withdrawals, or are too risky for the short term.
How do you invest your dollars for the short-term? Have you ever used one of the strategies listed above?