Best Short-Term Investments of January 2023 – Savings, CDs, Bonds & More

If you want to invest money for the short term, you’re probably looking for a safe place to put money until you need it in the near future.

Things are uncertain because, among other things, the economy is now facing rising inflation.

Short-term investments have less risk than long-term investments, but the best long-term investments could give you higher returns.

Safety should be the most important thing for investors to look for in a short-term investment.

Read more: See the best investing promotions here…

What’s Considered A Short Term Investment?

Most of the time, you make a short-term investment because you may need access to the money sooner rather than later.

If you’re saving for a house down payment or a wedding, for example, you need to have the money ready. Generally, investing for less than three years is considered a short-term investment.

If you have at least three to five years to invest, you can look into investments like stocks. Stocks give you the chance to make much more money.

In the past, the stock market has gone up an average of 10% per year over long periods of time.

You probably won’t make as much money with a short-term investment as you would with a long-term one.

Related: What is a Savings Bond? Here’s how they work.

Here Are The Best Short-Term Investments

Here are some of the best short-term investments that will still make you money.

High-Yield Savings Accounts

A high-yield savings account at a bank or credit union is a good alternative to keeping cash in a checking account, which usually pays very little interest on your deposit. A savings account will always get interest from the bank.

Who Are They Good For?

• A high-yield savings account is good for investors who don’t want to take risks, and especially for those who need money quickly and don’t want to take the chance that they won’t get it back.
• At banks, savings accounts are protected by the Federal Deposit Insurance Corporation (FDIC), and at credit unions, your money is protected by the National Credit Union Administration (NCUA).
• There isn’t much risk with these accounts in the short term, but investors who keep their money for longer periods may have trouble keeping up with inflation.
• Most of the time, you can earn much more interest at an online bank than at a traditional brick-and-mortar bank.
• You can usually get to the money quickly by sending it to your main bank or even using an ATM.
• Most savings accounts only let you take out or move money up to six times per statement cycle without having to pay a fee.
• You’ll want to keep an eye out for banks that charge fees for keeping an account or using an ATM, so you can keep those costs to a minimum.

How To Open One:

Compare the nation’s top high-yield savings accounts below:

Money Market Accounts

Money market accounts (MMAs) are another type of bank deposit account. They sometimes pay a higher interest rate than regular savings accounts, but they also usually require a higher minimum investment. Another common difference is MMAs often give you check writing ability and an ATM debit card.

Who Are They Good For?

• Money market accounts are good for people who will need their money soon and want to be able to get to it whenever they want.
• Make sure to find an FDIC-insured money market account, which will protect your money up to $250,000 per depositor and per bank.
• Money market accounts are similar to savings accounts in that the biggest risk comes over time. This is because it’s usually hard for rates to keep up with inflation.
• In the short term, though, that isn’t as big an issue.
• The main benefit of a money market account is that you can earn interest on it, and you can also get to your money quickly if you need it.
• Money market accounts are very easy to access, but there are federal limits on withdrawals just like with savings accounts.

How To Open One:

There are many banks and credit unions where you can open a money market account with.

Read more: See the best savings and money market account rates here…

Cash Management Accounts

A cash management account typically lets you put money in a variety of short-term investments.

Who Are They Good For?

• A cash management account gives you a liquid cash account that lets you get to your money quickly. It may also pay you interest on what you have in the account.
• Money market funds with low yields and low risk are often put into cash management accounts.
• Some robo-advisor accounts put your money in partner banks that are protected by the FDIC.
• Often, you can invest, write checks from the account, transfer money, and do other things that banks usually let you do.
• The money in cash management accounts is always available and can be taken out at any time.
• They may be even better than traditional savings and money market accounts, which have limits on how much you can take out each month.

How To Open One?

Robo-advisors and online stock brokers are usually the ones who offer cash management accounts. Here are some popular options:

Certificates Of Deposit (CD)

When you open a CD, you agree to keep the money in the account for a certain amount of time, which can be anywhere from a few weeks to many years, depending on the maturity you choose.

The bank will pay you a higher interest rate for the security of having this money in its vault.

A no-penalty certificate of deposit lets you avoid the fee that a bank usually charges if you cancel your CD before it matures.

Who Are They Good For?

• The no-penalty CD could be useful for people who want to have some access to their money and earn some interest at the same time.
• A no-penalty CD may also be appealing when interest rates are going up because you can get your money out without paying a fee and then put it somewhere else where you can get a better return.
• The FDIC backs CDs, so you won’t lose any money if you buy them.
• The bank gives you interest on the CD on a regular basis, and at the end of the CD’s term, the bank will give you back the principal amount plus the interest.
• CDs are less liquid than the other bank investments, but if you get a “no-penalty” CD, you can get out of it early without paying a fee.

How To Open One:

You can open certificates of deposit (CDs) at your bank or credit union. Online banks usually have the best rates. Here are some good options:

Read more: See the best CD rates here…

Short-Term Corporate Bond Funds

Corporate bonds are bonds that big companies sell to raise money to invest. Most investors consider them safe, and they pay interest at regular intervals.

Who Are They Good For?

• Bond funds are good for investors who want a diversified portfolio of bonds without having to analyze each bond individually.
• Individual investors who don’t have enough money to buy individual bonds and people who don’t like taking risks should also like them.
• The government doesn’t back short-term corporate bond funds. But bonds are usually pretty safe, especially if you buy a large number of different kinds.
• Also, a short-term fund has the least risk exposure to changing interest rates, so the price of the fund won’t change much if interest rates go up or down.
• Bond funds are groups of corporate bonds from a lot of different companies, usually from a wide range of industries and sizes.
• Short-term corporate bond funds are very liquid, which means that you can buy or sell them on any day that the financial markets are open.

How To Open One:

You can buy them almost anywhere online where you can buy ETFs and mutual funds.

Short-Term U.S. Government Bond Funds

Government bonds are similar to corporate bonds, except that the U.S. federal government and its agencies are the ones who issue them.

Government bond funds buy investments from government agencies like the Government National Mortgage Association, such as T-bills, T-bonds, T-notes, and mortgage-backed securities.

Who Are They Good For?

• Short-term government bonds are good for investors who don’t like taking risks and want to put their money somewhere very safe.
• Bond funds are good for investors who want a diversified portfolio of bonds without having to analyze each bond individually.
• These bonds are safe because they are backed by the full faith and credit of the United States.
• U.S. government bond funds will pay a steady rate of interest, but because they are safer than corporate bonds, they won’t pay as much.
• Government bonds are some of the most traded assets on the stock exchanges, so funds that invest in them are very liquid.
• You can buy and sell them any time the stock market is open.

How To Open One:

You can buy them almost anywhere online where you can buy ETFs and mutual funds.

Money Market Mutual Funds

Money market mutual funds are not the same as money market accounts. Even though they have a similar name, the risks are different, but they are both good short-term investments.

A money market mutual fund buys short-term securities like Treasury bonds, debt from cities and companies, and bank debt securities.

Since it’s a mutual fund, you’ll also have to pay an expense ratio to the company that runs the fund.

Who Are They Good For?

• Money market mutual funds are good for people who want to be able to use their money and get a return on it at the same time.
• Even though most of its investments are safe, money market funds are not as safe as FDIC-backed money market accounts.
• Money market funds can lose money, but this usually only happens when the market is very unstable.
• The money in money market mutual funds is fairly liquid, so you can get to it easily.
• They might let you write checks from the fund.

How To Open One:

Money market mutual funds can be bought from brokers who sell mutual funds.

Treasurys

Treasurys come in three types: T-bills, T-bonds, and T-notes.

Who Are They Good For?

• If you know exactly what kind of bond you want to buy, it’s better to buy individual Treasurys than to buy a group of them. This is because the risks and rewards of each bond are different.
• You might choose to buy specific securities instead of a government bond fund, depending on what you want to do.
• Like bond funds, individual bonds are not backed by the FDIC. Instead, they are backed by the government’s promise to pay back the money.
• Treasurys are one of the safest investments you can make, but that safety comes at a cost: lower yields.
• The most liquid bonds on the exchanges are U.S. government bonds, which can be bought and sold on any day the market is open.

How To Open One:

You can buy Treasurys directly from the government at TreasuryDirect.gov, or you can buy them from any broker who lets you buy individual bonds.

Read more: Treasury Direct Announces Series I Bonds Rate

Tips For Investing For Less Than 5 Years

If you are investing money for less than five years, you should do things differently than if you were investing for decades.

• Investing for a short time will give you a lower return than investing for a long time.
• Most of the time, if you’re investing for the short term, you should put more emphasis on safety than on return.
• You might be able to earn a little extra on that CD, but what if you need the money before it matures? Fit the type of investment you make to your needs.
• The FDIC backs bank products, so you won’t lose any of your money. But market-based products, even safe ones like short-term bond funds, could go down over short periods of time. Know the risks that come with your investments.

Best Short-Term Investments Summary

A year or less	High-yield savings accounts, money market accounts, cash management accounts	> 3.0%	Low risk and backed by the FDIC.
Two to three years	Treasurys and bond funds, CDs	~ 4.0%	Bank products and Treasurys are safest, corporate bond funds slightly less so.
Three to five years (or more)	CDs, bonds and bond funds, and even stocks for longer periods	> 4.0% (or much more if you’re investing in stocks)	CDs and bonds are relatively low risk compared to stocks, which can fluctuate a lot.

Bottom Line

When compared to longer-term investments like stocks or stock funds, short-term investments tend to be pretty safe. But make sure you know what you’re putting your money into.

Disclaimer: Before making an investment decision, all investors should do their own research on investment strategies. Investors should always be aware that the performance of an investment product in the past is not a guarantee that the price will go up in the future.

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