When it comes to choosing the best short-term investments for the next five years, there are three main factors to focus on — liquidity, expectations, and risk.
You need to keep your cash liquid so it’s easily accessible when you need it, which means you also need to invest in a way that doesn’t put you at too much risk of losing capital.
You will likely achieve a lower return than the best long-term investments offer as a result, yet that’s the price you pay for keeping your investment “safe.”
But, what are the best short-term investments out there?
In this article, we’ll break down the absolute best investment options for people with the following timelines:
- Best investments for up to three years
- Best investments for up to five years
If you have some cash to invest for up to five years and you’re wondering where to stash it, read on to learn about our top picks and how they stack up in terms of risk vs. reward.
Best Short-Term Investments Comparison Table
| Investment Options | Investment Timeline | Risk vs. Reward |
| High-Yield Savings Accounts Money Market Accounts | Less than 3 years | Low risk, low reward Potential return of 1% to 1.5% APY or more, depending on the account opened |
| Crypto Savings Accounts Real Estate Investment Trusts (REITs) Short-Term Notes | Less than 3 years | Medium risk, medium reward Crypto savings accounts are returning up to 8.05% APY, although additional risk is involved REITs can earn exceptional returns, but the risk is higher and liquidity may be lower than other investments Short-term notes offer yields of 4.6% or higher, although returns can fluctuate |
| Roth IRA Short-Term Bond Funds Exchange-Traded Funds (ETFs) Short-Term Corporate and Municipal Bond Funds Series I Bonds | Up to 5 years | Returns for Roth IRA accounts, short-term bond funds, short-term corporate and municipal bond funds, and ETFs vary widely, and you have the chance to lose capital over a shorter timeline Series I Savings Bonds are currently returning 9.62%, although liquidity can be a problem if you need your money quickly |
| Bonus Idea: Real Estate Hard Money Loans | Up to 5 years | Real estate hard money loans promise high yields but come with a relatively high amount of risk |
Best Investments for Timelines of Less Than 3 Years
When you know you’ll need access to your money in the next three years, you have to choose from low-risk investments that keep your cash liquid and easy to access. The best short-term investments for up to three years can help you do exactly that, although some offer more liquidity than others.
If your timeline is 3 years (or less) your #1 goal is to protect your savings.
High-Yield Savings Accounts
Potential interest rate: 1.25% or more, depending on the account
High-yield savings accounts offer a risk-free way to invest your money for the short-term, albeit with a much lower guaranteed return than you can get elsewhere.
The best high-yield savings accounts come with yields of well over 1% APY, and many charge minimal account fees or no fees at all.
Even more importantly, the best high-yield savings accounts come with FDIC insurance, so your investment of up to $250,000 per account is fully protected if your bank defaults or closes its doors.
If you’re looking for the best high-yield savings account to open online, we suggest checking out offers from CIT Bank and, Discover, and UFB Direct.
- Stability: High
- Liquidity: High
- Transactional Costs: Low
| Bonus: UFB Direct has a top yielding savings account that earns 2.61% APY and has no minimum balance requirements. Open an account here >> |
Money Market Accounts
Potential interest rate: 1.50% or more, depending on the account
The best money market accounts pay a little more than the best online savings accounts, and they also provide depositors with ATM cards, checks, and deposit slips. Also note that money market accounts are based on the account balance, not the length of time you invest your money. This makes money market accounts a good option for people who need a place to park their excess cash for the short term with the option to access their funds at any time.
Like other deposit accounts, you can also rest assured that your money market funds will be protected with FDIC insurance. If you’re looking for a money market account that offers the highest potential return, you should check out options from banks like UFB Direct and CIT Bank and UFB Direct.
- Stability: High
- Liquidity: High
- Transactional Costs: Low
Crypto Savings Accounts**
**As of 11/21/2022 Gemini halted their Earn program due to the FTX collapse.
Potential interest rate: up to 8.05% APY, depending on the account
Crypto savings accounts also make it possible to earn interest on your crypto deposits, but it’s important to note the changing landscape in this industry. For example, the amount of interest earned in these accounts can fluctuate wildly, and some crypto savings accounts are only available to investors who meet specific requirements.
The best crypto exchanges to check out include Gemini and others. At the moment, Gemini is offering up to 8.05% APY on crypto deposits, which are loaned out to other crypto investors similar to the way traditional banks loan out their funds.
That said, it’s worth noting that having a cryptocurrency savings account is not the same as having a savings account at your bank. Not only do crypto savings accounts come without the protection of FDIC insurance, but there are ongoing concerns about digital theft. Also be aware that you may have to pay fees to sell your crypto and get your money out.
- Stability: Risky
- Liquidity: Medium
- Transactional Costs: Varies
Real Estate Investment Trusts (REITs)
Potential interest rate: Varies, but tends to be higher than other short-term investments
Real Estate Investment Trusts (REITs) offer another way to invest for the short-term with less risk than the best long-term investments. This type of investment is made up of companies that own income-producing real estate that may be commercial, residential, or industrial in nature.
Investing in REITs lets you get exposure to returns from the real estate market without the added stress or gruntwork of being a landlord. REITs also let you invest in real estate with a lot less capital than you need to invest in physical property. For example, a company called Fundrise sells private equity REITs, and investors can open an account and start building a real estate portfolio with as little as $10.
Just keep in mind that returns are not guaranteed with REITs, and that you have the potential to lose money in the short-term. However, Fundrise has performed well since the company’s inception in 2010. After achieving average investment returns of 7.31% for their customers in 2020, the company returned clients 22.99% on their investments in 2021. During the first quarter of 2022, Fundrise investors have earned average returns of 3.49% on their investment.
It’s also important to note that some REITs are more liquid than others. In fact, funds invested with Fundrise may be difficult to liquidate if you need your money quickly.
- Stability: Medium
- Liquidity: Low to Medium
- Transactional Costs: Varies
Short-Term Notes
Potential interest rate: 4.6% or more, and returns can fluctuate
If you’re an accredited investor, you can invest in short-term notes through a company called Yieldstreet. The minimum investment starts at just $500, and short-term notes from Yieldstreet come with no hidden fees or expenses. You can also choose among short-term notes that offer liquidity in as little as six months, so your investment will be somewhat liquid if you have a general idea of when you’ll need to access your money.
When you open an account with Yieldstreet, your monthly interest payments will be paid directly into your Yieldstreet wallet. Getting started with this platform is a breeze as well. All you have to do is open an account, prove your accredited investor status, then link a bank account online in order to transfer your funds.
- Stability: Medium
- Liquidity: Medium
- Transactional Costs: Low
Best Investments for Up to 5 Years
If you want a place to park your investment for up to five years, you may feel comfortable taking on slightly more risk in exchange for the chance at higher returns. The best short-term investments for up to five years tend to fit that criteria, although they may also offer less liquidity as a result.
Roth IRA
Potential interest rate: Varies based on underlying investments chosen for the account
A Roth IRA is a type of retirement account that can be funded with after-tax income. As a result, you are free to withdraw the contributions you made at any time. However, you cannot withdraw your earnings without a penalty before you reach retirement age, or at least 59 ½.
Once you open a Roth IRA, you can invest in any number of options from mutual funds to index funds, exchange-traded funds (ETFs), or bonds.
This money will grow regardless, and perhaps even until you retire. However, the fact you can access your contributions at any time makes the Roth IRA a smart place to invest over a short period of time, even up to five years.
Just keep in mind that there are Roth IRA rules and income limits that apply. If you’re an exceptionally high earner, you may not be able to invest in a Roth IRA the traditional way as a result.
If you’re looking for the best places to open a Roth IRA, you’ll want to check out M1 Finance, Betterment, and E*TRADE.
- Stability: Varies
- Liquidity: High
- Transactional Costs: Varies depending on which online brokerage firm you use to fund your account
Short-Term Bond Funds
Potential interest rate: Varies
Short-term bond funds are products that are usually only managed by a professional financial advisor. Bonds are not as stable as money market accounts or high-yield savings accounts either, but they do offer the potential to earn a higher yield.
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? Some of the best options for buying short-term bonds include TD Ameritrade, M1 Finance, and E*TRADE.
- Stability: High
- Liquidity: Low to Medium
- Transactional Costs: Varies
Exchange-Traded Funds (ETFs)
Potential interest rate: Varies
Exchange-traded funds (ETFs) are a type of pooled investment that are built to match a specific index, such as the S&P 500. This makes ETFs somewhat similar to index funds, although ETFs can be traded throughout the day while index funds can only be traded at the end of the trading day. Generally speaking, ETFs also tend to come with lower minimum investment amounts, and they can be more tax-efficient than index funds.
In addition to ETFs that track a specific index, investors can also choose among ETFs that track specific sectors of the economy or a specific commodity. Trading fees for ETFs also tend to be on the low end, so they’re a good option for beginning investors who want to diversify their portfolio while also keeping costs down.
The good news about ETFs is the fact you can sell your investment and access your money at any time. On the flipside, you do have the potential to lose money in the short term.
- Stability: Varies
- Liquidity: High
- Transactional Costs: Varies
Short-Term Corporate and Municipal Bond Funds
Potential interest rate: Varies based on the bonds or bond funds chosen
Where a corporate bond is a debt instrument used to raise capital, a municipal bond is issued by a city, a town, or a state in order to raise money for various public projects.
Generally speaking, municipal bonds remain popular because they come with certain tax exemptions, and they are always deemed “safer” since they are issued by local or state governments. In the meantime, corporate bonds are not backed by any government resources, so they’re deemed riskier as a result. On the flipside, corporate bonds may offer the potential for a higher return.
Either way, you’ll need a brokerage account with a firm like TD Ameritrade or E*Trade to be able to trade individual bonds, bond mutual funds, and bond ETFs. Likewise, you can buy municipal bonds through bond dealers, banks, and brokerage firms.
- Stability: Varies
- Liquidity: Medium
- Transactional Costs: Varies
Series I Savings Bonds
Potential interest rate: 9.62%, although this rate fluctuates over time
Series I Savings Bonds are government-backed bonds that earn interest based on a fixed rate and a variable rate that is updated twice per year. For bonds issued now through October of 2022, the rate is 9.62%.
This type of bond doesn’t require you to pay any state income taxes, although federal income taxes apply. Just remember that Series I Savings Bonds aren’t quite as liquid as some other investments. For example, you can only cash them out after you have had them for at least one year. If you cash out your Series I Savings Bonds before five years, you’ll also lose three months of interest.
It’s also worth noting that each individual can only purchase up to $10,000 in Series I Savings Bonds each year. That makes these bonds a poor option if you need to invest $20,000 or you have $50,000 to invest right away.
- Stability: High
- Liquidity: Medium
- Transactional Costs: Low
Bonus Idea: Real Estate Hard Money Loans
Potential interest rate: Varies
Real estate hard money loans work differently than traditional mortgage lending, mostly because the borrowing requirements are looser than a traditional home loan. This means the investor buying a property can get their hands on their loan funds considerably faster (usually a matter of days instead of weeks or months), yet they pay a higher interest rate and have a much higher down payment requirement.
Investors who put their money into real estate hard money loans take on considerably more risk as a result. That said, the returns can be exceptional for investments that pay off.
Also note that real estate hard money loans usually last for just a few years, which makes them unique from traditional home loans that last 15 to 30 years. That said, investors who take on these loans won’t get their money back until the borrower pays their loan off, so they’re not nearly as liquid as other investments options.
- Stability: Low
- Liquidity: Low
- Transactional Costs: Varies
What I Look for In a Short-Term Investment
There are all kinds of ways to invest your money for the short-term, but you should definitely be picky when it comes to money you may need in the next few years. After all, you want to make sure you aren’t taking on too much risk, especially when it comes to risking substantial loss of capital. Yet, you also need to ensure your money will be somewhat easy to access when you need it.
The main factors I look for when comparing short-term investments include:
- Stability: The best short-term investment options tend to have a low risk of losing money over the short-term, or at least not over any period of three to five years.
- Liquidity: Short-term investments should also be somewhat liquid, or at least accessible within a one to five-year timeline.
- Low Transaction Costs: Short-term investments shouldn’t require you to pay exorbitant fees to access your money or to invest in the first place.
All the short-term investments we have outlined in this guide fit this criteria to a certain extent, although there are certainly some pros and cons to consider with each option we recommend. For example, investing in Series I Savings Bonds gets you a guaranteed return of 9.62%, yet you won’t be able to access your money for a least one year and you’ll give up three months in interest if you cash out your bonds within the first five years.
On the flipside, a high-yield savings account offers considerably less interest than that, but your money is protected with FDIC insurance and easy to access at any time.
With this in mind, you should remember that achieving a higher yield typically means taking on slightly more risk or giving up some liquidity. The best short-term investment for your money will offer a balance of these factors you can live with.
Best Short-Term Investments FAQs
What are short-term investments?
Short-term investments should also be considerably more liquid than long-term investments you have. For example, you wouldn't want to invest money you need in the next few years in a retirement account you can't access until you're at least 59 ½.
What are alternative investments?
Other alternative investments include short-term notes through Yieldstreet and art investment opportunities offered through Masterworks.
Great article, Jeff! I’m have already been depositing in an intermediate short term bond index fund in Vanguard (wanted a little more return than a shorter term fund). As for the savings accounts and money markets, please be aware that great initial interest rates always get lowered (at least in my experience). What was 1.5% (hello, Capital One!) is now .06% the last time I checked.
Jeff, I just found this thread and it has interesting Q&A. And “interesting” in a good way — reasonable advice from what I’ve seen, and gently reminding people about risk & reward. The only omission I saw was when someone said they were expecting and wanted to invest a small amount of money. Your advice should have been: “Congratulations. But before investing money, invest in extra sleep … now!” Overall, this is an enjoyable thread. Thanks.
Enjoyed the post.
Let me knows short term investment instruments with low risk and high returns.
I would like to invest $15,000.00 in a short term account,
as i haven’t invested b/4 & this account would only be used
to make a decent return on my investment & i could afford to
leave it in the account for 24months, what is your best opinion.
Thank You
Hi JT – Probably a two year CD at an online bank. The two year limit doesn’t allow you to invest in anything more risky, and I’m guessing you have plans for the money after that. If so, you’re best to play it safe and preserve the money and earn some interest.
Hi Jeff,
Great article and I completely I agree with you on paying off debt first. I would point out however, that it compares to a much higher return since federal and state taxes are taken out of most investments where paying off retail debts does not increase your tax burden. Let’s say you’re paying 40% combined tax rate, your 15% mentioned equates to a 25% taxable return. Pretty impressive in any market.
Absolutely, Eric, and that’s another great reason paying off debt almost has to be the first investment you make. The bigger issue is that debt usually carries higher interest rates than investments, locking you into a guaranteed loss. The primary exception is a home mortgage, since they’re secured by an appreciating asset, and for some, also come with a tax write-off.
Short term investment are really good . Amazing
I liked this a lot. Personally I listen to a broadcast by Eric Schleien on the qualitative investing approach and that appeals a little more. But I like this article and I think it has a number of valuable insights into short term investing.
Brilliant article. The information I have been searching precisely. It helped every body who are investing money first time and want short term, thanks. Keep coming with more such informative article.
What is your opinion on the M1 application.?
So far I have yet to see any negatives but I’d like to see what a professional thinks.
Thank you
Greg
Hi Greg – I haven’t looked into it, but if it works for you, then it’s a good one for you to have. There are so many investment apps available now that it’s mostly a matter of finding the one you like best.
Hi Jeff.am Gloria ,I want a good investment which bank can increase money fast in a short tern
Unfortunately banks don’t offer those investments. They mostly keep your money safe. If you want a high return investment you’ll have to take the risk of also losing money.
Tell your followers to checkout M1. It’s the best new trading application Ice come across.
Thanks.
Hi looking for some direction. I have a 403b from previous employer. Fidelity manages it. My current employer does not offer a 403 b or 401k. I have the option to rollover the 403 to a traditional IRA. I will also open up a Roth IRA but once i max out in contributions how else can i grow the excess money i have to save. my goal is to put extra money in a location where it won’t lose value and when i can access it without penalty. any suggestions?
Hi Ley – If you’re looking for absolute safety and access, you’re best to keep the money in the bank or a credit union. Talk to them about creating a CD ladder. You’ll get better rates than on savings or money markets, and you’ll always have at least some money ready for withdrawal.
Keep imvesting into Roth IRAs, is 110% your best option!
Cryptocurrencies ?
For short term?
Hello, I came on here to learn about short term investments and was very upset to see you referring to “like a schizophrenic”. What a horrible analogy and very offensive. Please remove it from your post. Very hurtful to those that have the illness and I still can’t believe that people use this word in this context.
Mary
My apologies Mary, the offending language has been removed.
Dont apologize to her. You have every right to say what you want. Mary is just being a snowflake
Yes, Jeff, you have every right to say what you want. Only someone with compassion and/or the willingness and ability to admit they are wrong will apologize. Thank you for being that kind of person.
Screw you Donald, you are an insensitive person. People aren’t in the wrong pointing out that we shouldn’t mental illness words around like curse words. It’s not the same and is very rude. Has nothing to do with being a snowflake. You are the snowflake here actually, getting upset at someone else’s situation. It had nothing to do with you and was resolved without you. Grow up.
You forgot to mention crypto currencies are not FDIC insured and stable coins are not insured also the interest is not guaranteed and will go down as more liquidity enters. They are attractive but know you can loose it all whether it be the stable coin fails or if you are not technologically incline it can be stolen rather easily.
I’ve been doing some research and came across this site. I like that you provided many options to ponder. I’m going to be receiving an inheritance from my Grandfather soon. I’m not sure exactly how much it will be, but his house is being sold and split four ways, so I’m guessing somewhere around 40k give or take. I’m 34 years old, no debt (besides mortgage), wife and three children (10,10, 5), 335k on my mortgage, 55k in TSP that I contribute about 5k a year to. I’m also looking at retiring from the Marines in about five years, with a pension of around 30k a year with 100% medical and dental. I have around 7k in emergency savings and plan on using some of the inheritence to top that off at 15-20k. I also plan on talking to a financial counselor for some advice on what to do with the bulk of the money, but I’m curious about your thoughts. Thanks!
Hi Brian – You’ll get different opinions on this, but since you’ve got your financial bases covered, I’d invest the extra inheritance in growth type investments. You can maybe set up an account for a medium range goal, like college for your children, or even paying off your mortgage early. But talk with the financial counselor about where to specifically invest the money.
I’m not a pro, but I think SalemFiveDirect.com and DollarSavingsDirect.com pay about 1.5% on savings/money market accounts now, which is more than the banks listed on this site and more than the banks that come up first on bankrate.com–you have to re-sort on APY at bankrate.com to find the best rate.
Trust no one!
Also, don’t lenders want to bid interest rates up, not down?
When I had about $40K, I bought a rental house–would have made even more if I’d fixed one up, but a rental gives you rent (which is more than dividends), usually appreciates, and teaches you a lot about life! You just have to be very careful and intuitive about whom you rent to. I would buy a rental in a “good” neighborhood only, where you’ll find “good” renters wanting to live there. With $40K, you have a down payment for some good properties. But don’t buy at the market price, but look for estate sales or other good bargains–buy low and sell high. Don’t use a buyer’s agent, but go just to the seller’s agent, who will want to sell to you (for the whole commission) and will talk the owner into your price in preference to those who come with buyer’s agents. I sort by price on realtor.com and then look at the places to see what to dig into deeper. I so admire what you’ve accomplished so wisely at your young age.
Real estate
Hi, I think we should also need to consider investing in Gold ETF which gives good return & helps in churning out money fast
HI Jeff; I am totally clueless to investments; but I will be retiring the end of this year
and should have up to $20,000.00 to invest, but wanted to know what would be the best investment to double my money in a year or is that even possible:)
Robert – There are no investments I’m aware of that could double your money in a year. And because they’d be pure speculations, I’d never recommend them. If you’re “clueless” with investments, then you should put the money into a mutual fund or better yet, a robo-advisor where it will be managed for you.
Investments that will “double your money” usually end up leaving you broke. Please abandon that idea.
If you want to double your money in a year then you could do some high risk investments. Try trading penny stocks. Very high risk, but could pay off huge. I’ve made over $100 in 3 minutes only trading with $100. Not saying it will happen, but there is a lot of money to make. It’s rare for penny stocks to double that fast though. Either way, Good luck!
Hi Perry – That may have worked for you (once) but it’s never something I’d advise most people to do. You’re more likely to lose money doing that. Also, most small/new investors can’t afford to lose the nest egg they have.
Wich other platforms like LendingClub can you recommend for people who`s not living in the USA? I went on the website of LendingClub but you have to be a citizen of USA to sign up. Any recommendations?
Hi Mel – Most are US only, but there are some specific to individual countries. For example, I believe that Prosper is available in Canada, as well as CommunityLend. There are also platform available in the UK. It really depends on where you live. Try doing a google search of peer-to-peer lenders in your country.
Hi,
I have a small amount for about $30K where I would like to invest to earn some good money in return. What are the best possible options I have that I can invest to earn a decent amount for an year.
-Thanks
Hi Sini – It really depends on your risk tolerance but I’d suggest first paying off any unsecured debt that you might have. That will provide the highest guaranteed return, and lower the risk of any other investing you do. I’d also make sure to have at least three months living expenses in a very liquid and totally safe vehicle, like a bank savings account, money market fund or short-term CDs. With what’s left, I’d invest some of it through a P2P platform. That isn’t risk-free, but you will get a much higher rate of return on your savings.
That’s just a suggestion. You have to do what makes you feel comfortable and secure.
This is awesome! These are really useful points to consider. Thank you for sharing this
I have a couple as friends and they ask me to ask this question. They have 100.000 from a heritage and they are not shure where is the best way to invest or put in a count for when they need to buy a car they mid need in a couple of years and they don’t have a morgate please help them with a good advise
Hi Rosa – Put enough in a savings account or money market to buy a car. If they’re looking to buy a house, then set some more aside for the down payment. Then invest the rest in low-cost, index based exchange traded funds (ETFs). Put most of the ETF money in stock funds, and some in bond funds, and you should be good.
Excellent post, always Seeking for extra, I agreed with you and Looking forward to seeing your post. The information you have posted is very useful. Keep going on, Great Post.
More way to saving money but a lot of confusion we need to be secure on investment rather than become a rich in less time.
Nice article. But if you’re talking about good investments, it’s also good to know the latest trends in the market. A great example of that is the Morgan Report by David Morgan and other financial gurus.
Good read, and very interesting advices not only in the article but in comments as well, thanks Jeff for sharing and answering everyone 🙂
You’re welcome Samuel!
Great article Jeff! I have folks who raised their hands looking for financial planning & investments but have less than $50K-$100K. Although I am not sure whether they are looking for short-term investments but I can’t seem to find financial advisors who is willing to talk with these folks. I can see that a prospect with $50K or less might potentially know their neighbor that might have $500K and up. But no one is willing to take on these prospects. Do you know of a good resource/website to refer these folks over to?
Thanks,
Andrew
Hi Andrew – It’s tough to find professionals to work with smaller accounts. But one might be robo-advisors, like Betterment, Wealthfront or Personal Capital. They aren’t personal financial advisors, but they will manage your portfolio for a very small fee.
Thanks Jeff!
Lending club has been my worst investment EVER. I thought I could build a protfolio that would earn me 4% to 6% with less risk than a bond fund. Mostly A and B loans. So far to date I am at 1.97% I have had 3 loans charged off due to bankruptcy and one loan that is 30-120 days over due. I can’t liquidate fast enough. The vetting process and quality of loan is pathetic. If lending club would buy me out at face value of my loans I would but it will be a long 2 1/2 years getting my money out of there as I do not want to liquidate using the after market. Ugh….
I would agree with a CD if you’re looking for something with less risk.
Hi Jeff, great financial tips. We run Corporative Society and we have 2000K (member’s funds) on a savings account making less than 2% per month. I want to re-invest this member’s money and get returns on monthly basis. I was thinking of invest it in online GFX returns company, based in Chicago. I don’t know much about them. How can I maximize this money? What would be your best advice to have this 2000K maximized its earnings in a short term month, 6 month or a year period? Please provide specifics type of invest where to invest this money. Your advice will be highly appreciated
Thanks!
Hi James – I can’t provide specific investment advice over the web, particularly not for member’s savings – which it sounds like you’re a trustee. Perhaps you can email me and we can discuss the situation in more detail?
What I have learned in life by my elders is investing in real estate is the best investment and building up wealth, But I was unaware that there are many other options to invest for short term, I get to know most of the by this post, but I want to share that I have built lot of money by investing in new property schemes, just by investing few hundred dollars in plot/apprt applications and sold approved applications after a few months. The best part in this investment is you only have to submit applications and invest your money, scheme builders invest a lot in marketing their schemes and building up awareness so you don’t need to contact any property agents to sell your approved applications.
If you put $15,000 into buying books to sell on Amazon using online arbitrage software like Zen Arbitrage or eFlip, you could double your money in a year. Few short term investments can equal that. The only problem is you have to physically handle the books unless you use a prep company.
Most of these are hardly an investment. Considering that inflation runs at 3 – 5% a year, a 1% return on your money actually means a 4% loss. One would be better to invest in something that at least keeps up with inflation!
You’re right MT, but when you go for higher returns, you’re taking on risk, especially if you’re looking for a 5+% return. What we’ve got listed here are low- and no-risk investments.
Berkshire Hathaway (BRKA & BRKB) are ideal for retirement savings AND short term parking.
Yield is 10-15% per year. No dividend = No taxable event = No tax due.
Very liquid. One A share converts to 1,500 B shares if you want some of the money.
Its ulrasafe. It has the best Capital Allocator in the world ever.
If your money is tied up how can you make money off of it? Let someone else use your money for 1%.. On 25000, over a 1 year you make nothing! Use that 25k and invest in yourself. You can easily open a business with 25k cutting grass, cleaning out old peoples gutters, etc while definitely getting more than 1% . You can even day trade and make over 400% in one year. I know I did it in 2002. With 25k my total investments throughout the year equaled over 100k. Stop letting people hold and make money off your money. Use your brain!. You can buy for instance those cheap light up toys for the 4th of july and go into a big city and sell them for a few bucks, thousands in a night, whereas everyone else is selling them for 10 to 20$… Lots of things you can do to make your money make you money while at the same time reducing your tax burdens on over all income. Banks should definitely be coughing up larger percentages. Otherwise, do like some of the other people said, invest in assets that will hold their value, or in a market sense metals that increase in value as the dollar decreases. Unfortunately the metal markets are acting weird. In fact none of the markets are following the laws of economics. Metals should be going down but they are going up. Silver and Gold should have been through the roof years ago. I personally doubt there will ever be a market correction as long as we have military and police that will do whatever their bosses say to whomever lol. Going to be an interesting year.
Hi, Jeff. Wonderful article, thx for your sharing.
I have 400K in my home loan offset account (to offset the 4.5% home loan interest rate in Australia).
I don’t have plan to use it in the next year.
Do you recommend me just leave it in the account or withdraw it to invest in something? If invest, what do you think would be a good choice for this amount of money?
Thx
Hi Mia – I’m not familiar with a home loan offset account in Australia so it wouldn’t be right for me to attempt to give advice. I’d strongly recommend that you consult with a financial professional in your country who can give you advice on that. Sorry, but thanks for reading!
Hi there,
Im no money expert by any means, but I know exactly what youre asking Mia. I do similar and have wondered the same at times but still think its one of the wisest things to do. It effectively renders my home loan interest free. For example, if you have a mortgage of $100,000 and you have $100,000, and an interest rate of 4%, your effectively paying $0 on interest as your offset amount cancels out the amount remaining on the mortgage. Id only invest that same amount if I knew I could earn more than 4% elsewhere. You should also still get tax benefits as it is an investment property.
Sorry – i meant …. if you have a mortgage of $100,000 and you have $100,000 in your OFFSET,,, which is key to this thread!
Hi Peta – You also have to be pretty safe on that 4% return. If your mortgage rate is 4%, a 4% return on stocks may not be an exact match since stocks have the potential to lose money. So it isn’t just a matter of matching return, but also risk. It’s not easy to find a truly risk-free way to earn 4% in this interest rate environment. The best you may do is “relatively safe”. Alternative: if you have enough to payoff the mortgage completely, you’re effectively locking in a 4% return on your money – guaranteed with zero risk.
Jeff,
I have $30k to invest and from reading the above entries a CD sounds like the safest short-term investment with the highest return (not sky-high but nevertheless safe). I haven’t done much shopping. Can you give me a general idea of how the interest rates increase in relation to how long I hold the CD? I also would like to add to my son’s college fund for my granddaughter, which would mean a much longer-term investment. Which investment do you recommend? Finally, my 401(k) is doing pretty well and I wonder if I should just put the $30k in it. I’m 63 and plan to retire at 67.
Jim
Hi Jim – The term spreads on CDs are narrow. You might get something around 1% on a 1 year CD, and 2% on a five year CD. The Fed raised rates today, so I’d wait to see what that does to CD rates. Since the Fed is promising to raise rates several times in the current year, you may want to go with shorter terms, like 6 months or less, so you can take advantage of higher rates.
As to investments for your granddaughter’s college fund, you probably should look into some sort of equity-income type of investments (meaning funds) that both pay dividends and offer capital appreciation. Just be careful with this, since higher interest rates could be negative for stocks.
As to putting the $30k in the 401k, that really depends on how much you have in the plan already, and how much you have outside of it. Holding some cash outside a retirement plan going into retirement is never a bad idea. You’ll already have the money, so it won’t be taxed on withdrawal.
Jeff, Is it possible to get 4% return on investment in current market condition? If so, how? I invested 1 million since April this year (65%bond and 35% stock) through wealth management division of a private bank. However, as of today the portfolio stands mere $1000 over million as stock keeps falling. I really feel disgusted.
Hi Shankar – It’s not possible to get a 4% return on a guaranteed investment that will not lose principal value in this market. Much of the problem with returns will depend on how well the investment markets perform in the future.
perhaps you should do your own investing and you’ll get better returns. think dividend stocks. Coca cola and mcdonolds have been paying 3%+ dividends for years. Stock doesn’t even have to go up in value if you get dividend payers. A million dollars worth of coca cola will pay you $30 grand a year income and will increase every year. Im not saying put all your eggs in one basket but dividend stocks are a great alternative to bonds and you’ll probably get a higher return and best of both worlds. Procter and gamble, johnson and johnson, coca cola, etc are the companies you want to be investing in. My 2 cents.
Great Article. Enjoyed the video you posted as well. Currently still focusing on paying off some Student Loan Debt, but once I get past this I would like to find some short term investment options and these are some great ones.
Hi Jeff,
First of all, thank you for sharing the short term investments tips, and I have noted them all to my helpful list to improve my investment ideas.
I have tried investing into the lending business, and I have succeeded in that and I believe that real-estate has never done me any harm, so I’d say that if you know what you are doing and what are the risk involved, then you have pretty good chances of making more money in small investments.
CD’s, I will give it a try because I had done this before and received monthly interest payments from the banks.
I know that the reader didn’t give much detail about their overall financial health status, but it might be useful to point out that if she doesn’t have much or anything in her emergency or general savings it would be a good idea to use part of the money for that purpose, regardless of her plans for the house.
Emergencies can pop up when you least expect them!
Thanks for sharing!
Hi Josh – That’s an excellent recommendation, though the reader didn’t indicate if she has emergency funds, and also seems to be heading in a different direction. If I were advising a client I’d give a priority to emergency savings, but that wasn’t part of the reader’s question, so I tried to stay on point.
Good advice, Jeff. When we’ve been in similar situations in the past I have always parked the money in a high interest savings account. My account is through an online bank that is FDIC insured and has no fees are minimum balances, etc., and it pays about 1%. That is about as good of a return you could expect from a savings account these days, and still provide you ready access when you need the funds for the house. Best of luck!
Well done my friend! When it comes to investing money for the short-term your biggest enemy is greed! If you try to go for higher returns, you will add risk to the move, which could end up costing you more principal than you earn in interest. Online banks are one of the best places to park money for the short-term, for all the reasons you report.
Hi Jeff, great financial tips. I have 30K sitting on my savings making less than 1% per month. I won’t be using this money for at least couple years. How can I maximize this capital? I already have a Lending Club account, I’m also in the stock market. What would be your best advice to have this 30K maximized its earnings in a 1-2 year period? Please provide specifics.
Thanks!
Hi David – My feeling is that if you think you will need the money within two or three years, then safety of principal is the real objective. I wouldn’t go with anything more risky than Treasury bills, CDs or money market funds. Yes, you can do better with stocks, but you can also lose money. Lending Club is a good mix into a safe portfolio, but it isn’t completely risk free either, so you have to weigh out the rewards vs. the risk.
Jeff – Great article. I will definitely take you up on the CC awards tip. It’s definitely a great plan to use cash (in the short term) to gain some cash flow, and while you spend too! As others have mentioned, tax strategies to complement these tips would have made this article even better.
David – Jeff makes a great point in protecting your capital. So, if I were in your position, the first thing I would do is get out of the stock market. I would only use the stock market as a long term strategy investing in solid companies like Coca-cola, McDonalds’, and other established, successful companies. For short-term, it’s too volatile, not to mention the fees.
Next, I would take the money put into peer-to-peer loans and place them in a safer plan that my associates and I call a Bridge plan.
It’s exactly the same concept as as peer to peer lending. The difference is that you are lending to investors in the commercial real estate world. This means that your loan is SECURED by a tangible asset i.e. multi-family commercial real estate. As Jeff states, it’s all about protecting your capital.
These bridge plans are short term plans: 12 – 18 months. Best of all, they yield 4 – 6%. Better than all the vehicles mentioned in this article.
If you want, I can give you a book (for free) about bridge plans. Click the link below and put your info.
–> http://www.saferyields.com/sendbook
Hope this information helps.
Hi Arleigh – It’s sometimes difficult to add tax strategies to this kind of list, because everyone’s tax situation is different. An excellent tax strategy might apply to 10% of readers, but not the other 90%. There may also be multiple tax strategies with a single investment, and that’s when an article can start looking more like it comes from an accounting journal than a blog!
Any thoughts about corporate or municipal bond funds?
Hi Alexis – I covered corporate and municipal bonds in #9 in the article, and all the same rules apply to funds that invest in them. Funds are good for small investors who want to diversify into bonds since you can do so with little capital. But just be sure that you know what the fund contains, especially the average bond maturities. The longer the maturities, the more risky the fund. If you’re looking for absolute safety of your money, then you won’t want to invest in bond funds. You have a better chance with funds that hold bonds that have maturities in under two years.
Yes I have 100k to invest from a settlement where should I invest and how? Thanks
My husband and I are trying to save as much money as we can for a down payment on a house. We set a timeframe to save, and during that time we are trying to grow that money as well. Great tips, thanks for sharing!
Micro-lending (also called peer-to-peer) can reduce the risk of individual loans either by putting you into a pool, or by having you loan out multiple small amounts to various borrowers. But there is still a lot of systemic risk, just like investing in a pool of junk bonds or sub-prime mortgages. These also mitigate the risk of individual borrowers, but sometimes they all (or a great proportion) go bad an once, like in 2007-2008. So you need to keep that in mind.
Also, you didn’t mention another “tax-free” way to earn money–invest in upgrades that mean you spend less. An example is to upgrade the insulation in your attic, if it could use some. The savings each month will pay it back “tax-free” since you don’t pay taxes on the extra money that stays in your bank account for other things.
Correct me if I’m wrong, but I believe your info about the roth IRA is incorrect. It’s my understanding that yes, you can withdraw your contributions from your roth, but if you don’t pay those funds back within 60 days you will be subject to a 10% penalty at tax time.
@ Joe Nope. Your contributions can be withdrawn at anytime without tax or penalty. It’s the earnings from those contributions that must remain in the account until retirement.
Interesting… I was charged a 10% penalty on $2000 I withdrew my roth in 2014. I wonder if there’s anything I can do to get that back?
Hi Joe! I think it’s important to emphasis that if you just opened a roth IRA, you have to wait 5 years to withdraw your contributions without penalty. Isn’t that correct?
Mostly Toyin. You can withdraw your contributions any time without penalty. But the five year rule if for investment earnings, and you also have to be at least 59.5 years old when the withdrawal is made.
Her suggestion doesn’t make sense. If the point is to earn interest on $65k and you can take out the initial investment tax free, but the interest earned is taxed, then why not explain that to the reader? The way this is written suggests that whatever you take out is tax free.
Simple solution. Don’t pay any taxes.
Retire. Pay off your mortgage. Pay off all credit cards (etc).
Learn to avoid taxes and interest.
Own cars that are paid off, low mileage but 10 years or older.
Owe nobody anything.
Put your savings into Silver (first) or Gold (second)
Buy food & store it for a rainy day. Canned not Frozen. Freeze Dried not Fresh.
Learn to survive.
Keep your head down. (Keep a low profile). (Keep your mouth shut).
You nailed it bob , did exactly the same great idea , I have a lot of silver coins and only a little gold coins , own house , no debt , own 4 yrs old car !!!! Very happy and I keep on investing in silver and gold, silver and gold , I’m trying to remember that Christmas song from a cartoon Christmas show and they sung that tune silver and gold , silver and gold , can’t remember the rest of the song ? But every time I buy silver and gold I think of that crazy little tune !!! Thanks bob
Investing in many banks doesn’t seem so easy. But it needs to be not just to be taken for granted because the money could not return to you. In order to have this safe, you need to consult some professional field people with this. They could introduce to you on what should be the aspects of this. They could also lead you to many different forms.
I’ve got about $100k that I want to set aside for a real estate purchase. I’m thinking the property search and subsequent purchase will take about a year. (That’s when I want to move). I’m hearing from this post to stick it in a short term CD or low interest online savings account . I’m thinking maybe the savings account is better because I can move it around if I find better rates in different banks? The CD would not allow that option, correct?
Time is not on your side.
Time is of the essence. Act now but act with forethought – but act (not react later).
Hi Jeff, since you a specialist in this area, could you pls recommend what’s the best option to increase 15k in a 5 years ? Thank you
@ Kristina What are you trying to increase to $15k? What’s your starting dollar amount?
@jeff rose Although not common, what if one has more than 250,000 – the typical max FDIC insured? Do you spread it out across multiple banks? Or just hope your bank doesn’t go under 🙂
Love the article and the video Jeff. Though you have provided a varied lost of investments than can be great for short term. However I personally prefer fixed deposits at banks and purchase of short term bonds. The less the risk factor the better. I also prefer the lending to peers thing as its always better to help out!
My son is having a baby and he has five thousand that he wants to invest in a short term investment for later down the road for the baby if has to get stuff do you have any suggestions thank you
My son hads 5.000 and he wants to put it in a short term so when he needs it he can take it out for emergencies and he’s having a baby and he could get stuff for the baby down the road do you have any suggestions thank you
How do you miss out of SIPC coverage by putting it in a Roth? By the way when you say FDIC – SIPC it makes it sound like it’s a function of, or a subsidiary of, the FDIC, which I don’t think it is. Why would you invest in a Roth short term (unless it’s for one of the few exemptions like a first time home buyer) when you’re going to get slapped with taxes and penalties (you’d likely end up with less than if you just put it in a regular brokerage account, assuming short term is a year or two)? By the way people some credit unions offer a fairly high yield, with no risk (FDIC insured), on a portion of the balance. With BECU it’s a little over 4% currently on the first $500 in checking and savings ($1000 total). Not a huge amount but if you had an account at several of these places it’d be a good place to park several grand.
Hi Jeff,
I have a mortgage which is lower than any rent I’ve ever paid. I have started paying back my outrageous student loans and I have about 5k in credit card debt, in which 1/2 isn’t being charged interest currently. I have a teacher’s retirement fund (I’m only 2 years in) and I put $150 pre-tax toward a Valic account. Before food (groceries or eating out) and gas, I have approximately 1.5% of my salary remaining. Until my salary miraculously changes, is there something else I should be considering to lower my debt or help create a savings? I’ve been thinking about a second job (which I’ve worked before) but I just didn’t know if its a wise return on investing my time. What I can do doesn’t really yield great gains working it 1 day a week (2 if I work 7 days a week which is only possible during summer do to grad school). I’m just wondering if I’m missing something…other than a US living wage.
This is horrible advice. You completely left out any mention of the tax consequences of cashing in these “investments.”
@Misty The tax consequences from cashing out would only be on if there were any short-term capital gains. Dividends and interest are taxed normally. How is that horrible advice?
What are the tax implications on investment income earned from LendingClub.com. Do you just get yearly 1099 interest type statements showing your earnings in interest from the loans you’re providing via Lending Club?
@Steve Yes, you get 1099’s just like any other investment/savings account.
Great list Jeff. Timeless and definitely going in my weekly Best Of roundup tomorrow.
Bonds are a good option but maturity is a big issue. If the investor is going to need to sell the bonds before they mature, interest rate risk could be an issue. The point should be made to buy bonds that mature before or at the point the investor needs the money.
I have been keeping an emergency fund and saving up for medium term purchases with Smartypig ( https://www.smartypig.com/). The interest rates have been at the high end of online savings accounts and the money is FDIC insured to $250k. I like how I can segregate money into different goals for planning trips etc.
I always keep a goal called “Cash” that I can transfer money to and close out in a pinch.
The Smartypig interest rate is 1% right now.
Jeff, thanks for this thorough and concise list – very helpful. We just sold our house and so have a big pile o’ cash making nothing (well, .02%) in the savings account. We need this cash to live off of for at least 5 years, while waiting for retirement age and penalty-free access to IRA’s. I just wanted to relay my experience with Lending Club to your readers. On balance, I’m a big fan, but it’s not without its drawbacks. I’m making around 10%, but it takes a lot of work to pick and choose borrowers that you want to invest in, to minimize the chance of default. Defaults can quickly bring your interest down to zero. And it’s critical to spread your invested money amongst LOTS of borrowers in smaller amounts, to mitigate risk, but again this means more work. They do have an “autopilot” reinvestment feature, but not sure if I trust it to do what I’d do, in the amounts I’d do it in. But if you have free time to play with it, say 15-30 mins per week, then it’s kind of a kick, and it’s a better return than most everything else. But, last thing, if you don’t reinvest your monthly payback amounts, then your earnings rate will be lower, because some of your principal is being paid back each month too. And loans last for either 3 yrs or 5 yrs, so that money is not accessible. I suppose you could invest a very large amount, and like an annuity, live off the proceeds for the next 3-5 years.
I watched your Lending Club video this morning and was very excited to try this for myself with a minimal initial investment. However, as I was signing up for a new account, I was transferred to Folio where I am able to trade funds but not invest directly with Lending Club due to the laws in my state. Do you suggest this approach or should I skip peer to peer lending for now? Thanks,
Shannon
@ Shannon I’ve never used the Folio portion of Lending Club so I can really comment. I think it just makes it a little more difficult to find loans.
Either way I’m still a huge fan of Lending and Prosper and could definitely see how most investors could benefit having it as a piece of their portfolio.
Hi Jeff,
I’m selling my house and should make about $40k from the sale. I’m going to pay off credit card debt first but would like to make interest on the remaining $30k. I’ll only have about 6-9 months before I need it for a down payment on a new home. Suggestions?
Thanks!
Hello Jeff,
What do you think about investing in bitcoin? I just started researching on the internet and it seems like it is booming. The only thing is one bitcoin is about $650.00.
Thanks,
Jimmy
@Jimmy It’s a pretty risky bet (IMHO). I definitely wouldn’t use money earmarked as short term money to invest into it.
I have about $25K that I plan to use for a down payment for a home in the next 6 – 24 months and also about $8K in emergency funding I plan to keep until something comes up. What is my best play? Thanks!!!
@ Ken In a savings account, period. (maybe a CD) You won’t make anything but it’s better than losing your principal. I would setup an account with Capital One 360 or find a local bank that has a special promo on short term money.
Hello, I have roughly $50K that I’m looking to do more with than just have sit in my CapitalOne360 which like you said is safe and earns a little. Been with them forever. However I’m looking to make a large purchase in roughly 1-3 years. What do you recommend?
@ LS14EVR With a 1-3 year timeline, I don’t think I would do much more with it other than your Capital One 360 account or a 1-3 year CD. I know interest rates are low right now but you don’t want to take any unnecessary risk.
If it’s longer than 3 years, you could consider Prosper or Lending Club.
Thank you for your response, that is very helpful. Kind of what I thought I should do based on your’s and others opinions and feedback.
Hi Jeff,
I have been taking my money out of the bank and just holding onto it to pay for a house or what not. I’m up to about $70k, but am looking for a high yield short term investment.
I’ve been looking at oil and natural gas stocks. While you have suggested stocks are not the best way to go, I’d like something I can get a return on within 3-6 months and then be able to evaluate and get my money out quick (and back in my hands) if things start to dip. I have no idea if it’s better to invest in metals or other options as I’m not to keen on bank or government funded returns.
What’s your thought for the best route???
@ Angel “Short term” and “stocks” don’t mix, especially for a short-term investment. Park it a savings account so you don’t lose anything.
Hello Jeff. I have recently becaome uneomployed. I have a small 401 savings plan with my former company as well a pension. I want access to the money to start my own business. I am 37 years old. I am trying to avoid as much penalty as possible. is it possible to put these(roll) accounts into an IRA or CD (IRA CD) etc…( or any other method) strategically so as to minimize taxes and penalties?
thanks!
Best regards ,
Harold
@ Harold I’ve read instances where you can do it, but I would caution you to be careful. Here’s an article on USA today that talks about how to do it: http://www.usatoday.com/story/money/columnist/brooks/2013/09/23/retirement-entrepreneur-401k-pension/2833897/
Jeff have you heard of rolling your 401k over to your retirement plan you setup with your company and using that money for the business? It’s more detailed than that of course but a way to use your 401K money without the penalty.
Great article Jeff…I really enjoyed the video as well. Going to check out your review post on Lending Tree
Thx,
Frank
Jeff, Love the video and the article. Have about 2% of our families net worth in Lending Club and Prosper. Also, like Dan mentioned, put as much as possibli into Govt I bonds. (10K max per year per person + 5K from tax refund). (Sorry we didn’t talk more at Fincon 🙂 )
Series I savings bonds make a good home for your emergency fund. It requires some patience, since they won’t function as an emergency fund during the first year, when the bonds can’t be sold. But, for the subsequent 29 years, your money is easily accessible and keeping up with inflation.
@ Dan. Great addition to some short term investing options.
@Dan and @Jeff: Can you explain the best ways to purchase Series I Savings Bonds?
Savings bonds can be purchased in two ways: (1) Treasury Direct and (2) using your federal tax refund.
(1) After creating a Treasury Direct account at www.treasurydirect.gov, you can purchase up to $10,000 per year (per social security number).
(2) When filing your federal tax return, if you are due a refund, you can direct the IRS to issue the refund as Series I Savings Bonds. You can elect up to $5,000 per tax return.
I appreciate how thorough this list is. It’s also good to think of high interest debt being paid off as an investment. Saving doesn’t have quite the thrill of investing but both need to be taken into account.
I don’t really have any short term investing right now. Just some money in 2 savings account. One for buildingup an emergency fund and the other for our “home ownership” fund. It was the account we were saving for a deposit, but now that we’ve bought, what gets put in there is for maintence and repairs.
When I do have extra cash laying around, I do want to give P2P lending a shot.
I stick with ING direct for my short term emergency money. I can get to it fast enough and although interest rates in general aren’t very high right now I know my money is safe should I need it.
When it comes to short term investing, safety is the key!
I’ve had numerous clients complain that they aren’t making any money in their savings accounts and want to explore other options. I quickly remind them that they aren’t losing money, which is that much more important.
I have a online savings account at GE Capital Bank, easy to withdraw my money and the funds are in my checking account the next day. Also the interest is compounded daily and is currently at .95 % which in my humble opinion is pretty decent in todays’ world.
Microplace is a microlending site that is owned by Paypal/ebay and offers investments of varying amounts, terms, and rates. It’s similar to kiva, except its an actual investment.
@ Alex. Interesting. I wasn’t aware of them. I’ll definitely have to check out to see if they are a sold option for short term investing.
Thanks for sharing!
Microplace is no longer accepting new investments as of January 14, 2014.