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 | ||
|---|---|---|
| Money Market Accounts | BBVA: 2.40% | Open Account |
| High Yield Savings | Ally Online Savings: 2.20% | 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. 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.
- Our Rating
- Account NameClearChoice MMA
- APY 2.40%
- Initial Deposit Minimum $25
2. Online Savings Account
Ally Bank was built on the premise of getting rid of all the crazy fees that normal banks charge while giving customers great rates and great customer service.
I mean, seriously? How can you not love that? A bank that is fighting to end banks gouging customers will get my vote every time.
Ally also offers a robust set of products ranging from checking and savings to CDs, IRAs and other investment options
- Our Rating
- Account NameAlly Online Savings
- APY 2.20%
- Initial Deposit Minimum $0
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
- Our Rating
- Loan TypesPersonal, Business, Medical, Auto and more
- Average Returns 3.89% – 8.04%
- Initial Deposit Minimum $25
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.
You can get the highest interest rates for CDs at online banks like Compass Bank and Discover Bank.
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?
The best online checking accounts for bonuses and interest rates are currently available from Capital One 360 and BBVA (formerly BBVA Compass).
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.
You’ll need a brokerage account like Betterment, TD Ameritrade or E*Trade to be able to trade bond funds and ETFs.
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.
Again, TD Ameritrade or E*Trade are good places to start if you want to open a new 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.
You’ll need a brokerage account like TD Ameritrade or E*Trade to be able to trade individual bonds, bond mutual funds, and bond ETFs.
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?
Anti aging says
Enjoyed the post.
Ravindra Sharma says
Let me knows short term investment instruments with low risk and high returns.
J.T. Draper says
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
Jeff Rose says
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.
Eric says
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.
Jeff Rose says
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.
Sheena says
Short term investment are really good . Amazing
Brian C says
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.
Priya Kale says
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.
Greg says
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
Jeff Rose says
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.
Thandiwe Gloria Vokwana says
Hi Jeff.am Gloria ,I want a good investment which bank can increase money fast in a short tern
Jeff Rose says
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.
Greg says
Tell your followers to checkout M1. It’s the best new trading application Ice come across.
Thanks.
Ley says
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?
Jeff Rose says
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.
Alex Peters says
Keep imvesting into Roth IRAs, is 110% your best option!
jeanjean says
Cryptocurrencies ?
Jeff Rose says
For short term?
Mary says
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
Jeff Rose says
My apologies Mary, the offending language has been removed.
Donald Trump says
Dont apologize to her. You have every right to say what you want. Mary is just being a snowflake
Janice Paddock says
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.
Brian says
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!
Jeff Rose says
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.
D. Sewell says
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.
Prats says
Hi, I think we should also need to consider investing in Gold ETF which gives good return & helps in churning out money fast
robert says
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:)
Jeff Rose says
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.
Perris says
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!
Jeff Rose says
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.
Mel says
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?
Jeff Rose says
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.
Sini says
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
Jeff Rose says
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.
Sooner House Buyers says
This is awesome! These are really useful points to consider. Thank you for sharing this
Rosa says
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
Jeff Rose says
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.
Gaurav Heera says
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.
Gaurav Heera says
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.
John says
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.
Samuel says
Good read, and very interesting advices not only in the article but in comments as well, thanks Jeff for sharing and answering everyone 🙂
Jeff Rose says
You’re welcome Samuel!
Andrew says
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
Jeff Rose says
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.
Andrew says
Thanks Jeff!
Matt says
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….
Young and Finance says
I would agree with a CD if you’re looking for something with less risk.
James Russell says
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!
Jeff Rose says
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?
GREL says
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.
Jay says
If you put $15,000 into buying books to sell on Amazon using online arbitrage software like Zen Arbitrage or eFlip, you could double your money in a year. Few short term investments can equal that. The only problem is you have to physically handle the books unless you use a prep company.
MT says
Most of these are hardly an investment. Considering that inflation runs at 3 – 5% a year, a 1% return on your money actually means a 4% loss. One would be better to invest in something that at least keeps up with inflation!
Jeff Rose says
You’re right MT, but when you go for higher returns, you’re taking on risk, especially if you’re looking for a 5+% return. What we’ve got listed here are low- and no-risk investments.
Sunil Kololgi says
Berkshire Hathaway (BRKA & BRKB) are ideal for retirement savings AND short term parking.
Yield is 10-15% per year. No dividend = No taxable event = No tax due.
Very liquid. One A share converts to 1,500 B shares if you want some of the money.
Its ulrasafe. It has the best Capital Allocator in the world ever.
na says
If your money is tied up how can you make money off of it? Let someone else use your money for 1%.. On 25000, over a 1 year you make nothing! Use that 25k and invest in yourself. You can easily open a business with 25k cutting grass, cleaning out old peoples gutters, etc while definitely getting more than 1% . You can even day trade and make over 400% in one year. I know I did it in 2002. With 25k my total investments throughout the year equaled over 100k. Stop letting people hold and make money off your money. Use your brain!. You can buy for instance those cheap light up toys for the 4th of july and go into a big city and sell them for a few bucks, thousands in a night, whereas everyone else is selling them for 10 to 20$… 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.
Mia says
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
Jeff Rose says
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!
Peta says
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.
Peta says
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!
Jeff Rose says
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.
Jim Irwin says
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
Jeff Rose says
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.
shankar says
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.
Jeff Rose says
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.
mattjcrane says
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.
David Chen says
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.
Rajkumar@Top 10 Binary Options says
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.
Josh says
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!
Jeff Rose says
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.
The Green Swan says
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!
Jeff Rose says
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.
David says
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!
Jeff Rose says
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.
Arleigh says
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.
Jeff Rose says
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!
Alexis says
Any thoughts about corporate or municipal bond funds?
Jeff Rose says
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.
Jim says
Yes I have 100k to invest from a settlement where should I invest and how? Thanks
Laurie says
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!
EricTheRon says
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.
Joe Norman says
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.
Jeff Rose says
@ 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.
Joe Norman says
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?
Toyin says
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?
Jeff Rose says
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.
John says
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.
Billy Bob says
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).
Keith says
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
Wealth Manager says
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.
Joy says
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?
Billy Bob says
Time is not on your side.
Time is of the essence. Act now but act with forethought – but act (not react later).
Kristina says
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
Jeff Rose says
@ Kristina What are you trying to increase to $15k? What’s your starting dollar amount?
Brian says
@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 🙂
Amanda Egbert says
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!
Jess says
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
Jessie .D says
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
anon says
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.
Jaxx says
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.
Misty says
This is horrible advice. You completely left out any mention of the tax consequences of cashing in these “investments.”
Jeff Rose says
@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?
Steve Carman says
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?
Jeff Rose says
@Steve Yes, you get 1099’s just like any other investment/savings account.
Joseph Hogue says
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.
Steven says
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.
Scott says
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.
Shannon says
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
Jeff Rose says
@ 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.
brittany says
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!
jimmy says
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
Jeff Rose says
@Jimmy It’s a pretty risky bet (IMHO). I definitely wouldn’t use money earmarked as short term money to invest into it.
Ken says
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!!!
Jeff Rose says
@ 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.
LS14EVR says
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?
Jeff Rose says
@ 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.
LS14EVR says
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.
Angel says
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???
Jeff Rose says
@ 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.
Harold says
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
Jeff Rose says
@ 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/
Dionne says
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.
Frank says
Great article Jeff…I really enjoyed the video as well. Going to check out your review post on Lending Tree
Thx,
Frank
Barbara Friedberg says
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 🙂 )
Dan says
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.
Jeff Rose says
@ Dan. Great addition to some short term investing options.
Ryan Tanton says
@Dan and @Jeff: Can you explain the best ways to purchase Series I Savings Bonds?
Dan says
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 http://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.
Mac Hildebrand says
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.
Edward Antrobus says
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.
Lance@MoneyLife&More says
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.
Jeff Rose says
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.
Derek says
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.
alex says
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.
Jeff Rose says
@ 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!
Aaron says
Microplace is no longer accepting new investments as of January 14, 2014.