The best short-term investment options explained

Read our article to find out which investment option is the best for you

investment

The best short-term investment options explained. Source: shutterstock.com

People often ask something like “I’ve got $30,000-$100,000, and I’d like to invest, but banks only offer low-interest rates, what am I supposed to do?” The point of this article is for those who are looking for a high return on short-term investments with limited risk.

1. Peer-to-Peer Lending

P2Р lending sites connect investors/lenders with consumers/borrowers when consumers need to borrow money. Thus, an investor becomes a bank, which provides lower percentage rates than traditional financial institutions do. Usually, such an investment strategy leads to a win-win situation for both lenders and borrowers. A lending company would be in a good position too since any lending website takes a fee for providing a platform service.

P2Р lending sites connect investors/lenders with consumers/borrowers. Source: shutterstock.com

2. Online Savings Accounts

If you decided to deposit your money, but you need some guarantees that you won’t lose your money, and you are happy to receive low-interest rates, online high yield savings account totally fits your aim.

What you will get:

  • First and foremost, it is about guarantees. Typically, statistics show that short-term investments do not exceed $100,000 – $150,000. That means most investors keep their deposits below Federal Deposit Insurance Corporation coverage, which totals $250,000. Accordingly, you can cash your money whenever you want, since you firmly believe that your funds are safe.
  • Not big, but risk-free returns. Even though low interest rates are not really an advantage, the “risk-free” part makes it a good deal. You’ll not receive much interest, but you will know that you are not going to lose anything.
  • High liquidity. That means “withdraw your funds whenever you want”. This is because most banks allow five/six withdrawals from such accounts monthly.

Investing in online savings account you should know that normally, it wouldn’t offer you a high-interest rate. Source: shutterstock.com

What you will miss out on:

  • Higher interest rates, thus higher returns. Investing in online savings account you should know that normally, it wouldn’t offer you a high-interest rate.

3. A Roth IRA

You may say that it is not a real investment, and it is your right to say that. However, this good retirement account can also serve as a short-term investment account. Different kinds of retirement accounts (like 401k, or traditional IRA) include penalties for early withdrawals.

However, it is the Roth IRA we are talking about, and it is different.

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.

Mostly, people do not recommend this option and say that it is much better to keep your funds invested. Nevertheless, it gives you an opportunity to save up funds for retirement with an option to withdraw some money if you really need to.

Different kinds of retirement accounts include penalties for early withdrawals. Source: shutterstock.com

What you will get:

  • Withdraw money freely. But you should know that a transaction usually takes a couple of days. However, despite all the difficulties, you still can withdraw some money without a penalty, which is a huge benefit.
  • High return rates. The Roth IRA gives you even more. With Roth IRA different types of investments like mutual funds, ЕТFs, and bonds are accessible to you. This is where you can get higher return rates.

What you will miss out on:

  • Risk-free returns. When returns are high, they always bring some risks, especially if we are talking about bonds, mutual funds, ETFs, etc. The higher interest rates – the higher the risks. It’s an axiom, therefore you should accept it.
  • FDIC coverage. If your brokerage fails, you would have the ability to request Securities Inspector Protection Corporation coverage. But you should be aware of pitfalls – it will not cover investment losses. It covers only the failure of your broker.

4. Certificate of Deposits (CD)

Ordinarily, a bank offers a range of terms for its deposit accounts. Normally, this range differs from three months to five years. The best thing about this is that you have a choice. Thus, you are able to choose the length of a CD that fits you and fulfills your deposit requirements. However, one thing remains the same – the longer the term of the deposit, the higher the income will be.
Although this strategy is viable, it has its weak points. Every time a client needs to withdraw funds before the maturity date, they will pay fees.

A bank offers a range of terms for its deposit accounts. Source: shutterstock.com

5. Money Market Account

A money market is a part of the financial market, and it specializes in short-term lending/borrowing (with original maturities of 12 months or less). In other words, the money market in some ways is similar to a one year CD, especially the annual percentage yield. An investor has access to their money whenever the need arises, and it makes this strategy a good deal. Thus, a depositor can use an early withdrawal option without paying any penalties.

A money market account usually provides investors with plastic cards (for ATM withdrawals), checks, and deposit slips. Money Market accounts are based on the account balance, not the length of time you invest your money.

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