I have $65,000 that I need to invest but I want to make more than the bank is offering. Where can I get a high return on a short-term investment with limited risk?
In such an unstable market, short term investing may be a safer alternative for investors.
Short-term investing allows investors to invest their money – whether it’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 Peak: Our Top 3 Best Short-Term Investments|
|High Yield Savings||Discover Online Savings: 2.00%||Open Account|
|Money Market Accounts||CIT Bank: 1.85%||Open Account|
|Peer-to-Peer Lending||Lending Club: 3.89% – 8.04%||Open Account|
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.
(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.)
There are various short-term investment accounts available to you, and which is right for you depends on your particular situation and preferences.
Top 11 Best Short Term Investments That Limit Your Risk:
Our Top Picks For Short Term Investments
1. Online Savings Account
If you’re looking for a bank to invest your savings in to earn very high-interest rates, check out Discover Bank. Currently, they are paying 2.00% for their online savings account which is among the highest offered anywhere.
The account requires no minimum balance to open and charges no monthly maintenance fees. It also comes with 24/7 online access to your funds, online transfers to and from other banks, and direct deposits.
As is the case with savings accounts and money markets with all banks, withdrawals and outgoing transfers are limited to no more than six per monthly statement cycle.
2. Money Market Account
Money Markets 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.
3. Peer to Peer Lending: Lending Club
P2P websites work as tools to connect investors to qualified consumers in need of a loan and allow investors to become the bank, providing a small percentage of multiple borrowers’ loans.
Investors purchase notes and receive a monthly income in the form of loan repayment and interest. In the end, this can easily be a win-win for everyone involved.
One such company, Lending Club, sets the interest rate on notes based on specific credit criteria. And since they only accept desirable borrowers, they dramatically reduce the risk for default and potential losses for the lenders.
Lending Club offers loans from a few hundred dollars to over $10,000; how much you should invest depends on the level of risk you’re comfortable with and your investment timeline. Read my full Lending Club Review
4. Certificates of Deposit (CDs)
Banks offer a variety of terms for their deposit accounts, ranging from 3 months to 5 years. Which length of CD will work best for you depends on your timeline and how long you want your investment out of your hands.
CDs allow depositors to invest their cash for a specific length of time. The longer the term of investment, the higher the yield will be.
A client wishing to receive monthly interest payments can elect to do so at the time of application. However, most individuals who buy CDs let the interest accrue until the CD matures.
The only downside to a CD is the fact that, if you need to pull money out before the maturity date, you will pay a fee. Exception: CIT Bank 11-month No-Penalty CD
The fee is usually equivalent to 3 months worth of interest, and that can take a huge bite out of your earnings.
5. A Roth IRA
Let me explain why one of my favorite retirement accounts also can work as a short term investing account.
Since you fund your Roth with after-tax income, you are free to withdraw any contributions (not earnings on those contributions) at any time you want.
I have seen far too many people not save enough for retirement, and pay heavily for it in their later years, which is why I came up with some great ways to save money for your reference!
Funding your Roth IRA allows for getting a huge head start on this.
In using a Roth IRA for short term investing you’ll get:
- The ability to withdraw funds.
- Potentially higher rates of return: With a Roth IRA, you get access to other types of investments like mutual funds, ETFs, and bonds to earn a higher rate of return.
We’ve told you the best places to open a Roth IRA in the past.
Brokerage firms like E*Trade are great and also have lots of options to choose from.
In summary, a Roth IRA can provide a solution for individuals who crave the potential for higher returns but want the ability to withdraw their contributions if the really needed to.
Check out our reviews on great investing options:
6. 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 in order 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 with 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.
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.
Since you would be storing your money in a checking account rather than a savings account, you do take a hit on the interest rate.
Unfortunately (or fortunately!) interest rates are so low that the difference isn’t as significant as it could be.
In using a checking account for short-term investing you’ll get:
- A guarantee: to never lose principal as long as you keep your total deposit at the bank below FDIC coverage of $250,000.
- A small, risk-free return: Current online checking interest rates are very low, but it is a risk-free return.
- Extremely high liquidity: You get unlimited withdrawals via transfer, debit card, or ATM use with online checking accounts.
- A hassle-free investment: Opening an online checking account is a fairly painless process that won’t stress you out or take up too much of your time.
Looking for an online checking account?
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 pay out 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.
There are three main short-term investments within the bond category, and each is one you could consider.
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 5 years the value of the bond might increase 2.5% per year.
The end 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 municipals 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.
However, financial tools like Mint can help you manage your finances so you can see what kind of an impact your debt payoff is having.
Even better, you can transfer your high interest balance to a 0% APR balance transfer card to speed up the process.
These two offers are the best I’ve found so far:
- Chase Slate® – The Chase Slate®card offers the best deal for balance transfers on the market. Not only do you get 15 months at 0% APR, but you can transfer balances with no balance transfer fees for the first 60 days. If you’re paying high interest rates on existing debts, consider how much money you could save if you paid no interest for 15 months – it’s like getting free money.
- Discover it® – The Discover it® card gives you 18 months with 0% APR. That’s well over a year to pay down your high interest debts without paying interest at all.
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 set-up 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 of 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?