With the economy as it is, you might be worried about trying any long-term investments, or perhaps you just want to invest your money for a short time to save up for a new car, a child’s college tuition, or a new house. You can easily make your money work for you by investing it in the right place. This is a short list of the five best short-term investments and account options for those investments.
1. Certificate of Deposit (CD)
Depending on the bank you choose, you can invest your money for as long as five years or as little as just a couple of months. The key to this kind of investment is having the patience to let it grow. If you set a longer term on your investment, you’ll reap a greater reward. However, if you end up with an unavoidable situation that requires you to pull the money out before the end of the term, you will have to pay a fee. If you’re considering a CD, you might want to consider one of these banks listed below, or talk with your bank and see if they have CDs available.
2. Pay off any high-interest debt you have
If you have credit cards with an interest rate that’s insanely high, you might want to consider paying those off as a short-term investment into your future. Try doubling or tripling the minimum monthly due so that you can pay that credit card off that much faster. Just think of all the money you’ll save not having to pay the credit card companies all that interest! If you need help remembering who to pay and when to pay them (or even specific amounts to pay), try using a financial tool. Manilla is available for Android, iOS, and your computer. It’s free, and you can access all of your accounts with one password.
There are three kinds of bonds to consider if you want to invest in this way: Treasury Inflation Protected Securities (TIPS), municipal bonds, and corporate bonds. TIPS have a fixed interest rate, but their value rises with the value of inflation. So, you might only get a little bit of extra money from the interest rate, but at least you won’t have lost any money. Your initial investment will be worth the same amount you originally invested, and you’ll have some money from the interest it earned.
Municipal bonds tend to have a higher risk than TIPS, and they don’t have a fixed interest rate. However, the changes in interest rate will affect your bond if you sell before it has matured. Holding the bond until maturity will give you a full return of your investment and any interest it earned. Corporate bonds have an even higher risk than municipal bonds, but they also yield a greater reward. If you hold these bonds until maturity, you will also receive a greater reward than with TIPS. If you’re interested, you’re going to need a brokerage account. You might want to try E*Trade if you’re interested in investing in bonds.
4. Peer to Peer Lending
Another way to invest money for a short time is to try your hand at peer to peer lending. It’s a little like loaning your younger sister one hundred dollars, but instead of having the likelihood of never seeing that money again, you and the borrower have come to an agreement regarding an APR and amount of the loan. If you go through a reputable company that sets up these lendings, you have a much lower chance of losing that money. If you’re interested, you might try the Lending Club.
When investing, you’re going to need somewhere to put that money. Why not put it somewhere that’s going to continue to help it grow? There are a number of options that you can review listed below.
1. An Online Savings Account
Using an account like this will guarantee that you will not lose any money, and you’ll even get a little bit of return from interest earned on the account. Provided that you keep your total deposit below $250,000 FDIC coverage you won’t lose any principal. The return is small, averaging to about three quarters of a percent, but it’s risk-free. Plus, you don’t have to worry about fees for cashing out early. You can usually make about six withdrawals per month before the bank charges you a fee. There’s no need to sell your savings account to cash out.
2. An Online Checking Account
Like the online savings account, this account will guarantee you never lose money, provided that you stay below the $250,000 FDIC coverage. Like the savings account, your return is risk-free, but it’s also a lot smaller. The interest rates for a checking account range from three quarters of a percent and lower. However, if you need to be able to access this money more often than six times a month, you have an unlimited number of withdrawals available.
3. A Roth IRA
This type of retirement account is not like others. If you withdraw funds early from your 401k or a traditional IRA, you’re going to get slapped with an early withdrawal fee and have to pay income taxes. These traditional retirement accounts take funds from your income before taxes. A Roth IRA works differently. This kind of retirement account is funded with income that has already been taxed. This means you can withdraw contributions whenever you like, and you should start putting money into it right away for the future.
So, if you suddenly find yourself hit with hard times, you can choose to remove the money you invested in your Roth IRA to help you get through. You want to avoid this as much as you can, however, because it’s important to invest in your IRAs for your retirement in the future. Using this kind of investment account, however, does allow you a higher rate of return because it opens the door to other types of investments.
Play it Safe
One of the most important things to remember is that you should always seek expert advice when choosing how to invest your money. Reading articles is great to receive an overview or some helpful advice from what others have experienced, but you should go to a broker or other professional who has been trained with how to help people find the best options for their investments.