Saving and Making Short-Term Investments


When you may need to use your money in three years or less, rather than letting it sit idle until you need it, making safe short-term investments should be the preferred strategy. Here are some expert tips.

Short-term investing focuses on savings

If you think you may need to use the money you have saved within three years or less, then your investment focus should be primarily on saving money rather than chasing high yields.

Generally speaking, the higher the return, the greater the risk. Short-term investing is the opposite – it’s about minimizing risk so that you don’t lose your savings. Therefore, any short-term investments you make should be those that will protect your savings from market volatility.

The best types of short-term investments

When we designate the “best” type of short-term investments, we are talking about those most likely to provide small gains while minimizing risk and eliminating it with some investments.

The five best short-term investments are:

According to the experts at US News, here are what are considered the five best short-term investments.

High yield savings accounts

These are FDIC insured up to $250,000. Most banks pay very low interest on checking and savings accounts. However, some online banks, such as Marcus by Goldman Sachs and Barclays, are offering APYs as high as 2% on their high yield savings accounts.

Government treasury bills, notes, and bonds

These government-backed investments are guaranteed to pay their face values when held to maturity. In other words, you will receive repayment of your principal and the interest guaranteed by your investment.

Short-term bond funds

If you can wait at least 18 months before needing your money, short-term bond funds are relatively stable short-term investments and can return somewhere between 2-4%, especially if you can go as long as ten years.

CD Ladders and Money Market Accounts

A CD certificate of deposit can pay slightly more than a high yield savings account. However, you must agree to tie up your money for at least a year or longer to receive the best rates. People set up what’s called a “CD ladder” where they mature at various dates, making the availability of your savings occur at various times rather than all of your money all tied up all at once.

Fixed income funds

These offer small returns but minimize risk. They are designed to limit losses in a down market, making them good short-term investment vehicles.

Saving versus investing

According to the experts at US News, below are some of the risks of saving versus investing.

Pros of saving: Low risk, safe, provides immediate access to money, best for short-term goals—cons of saving: Low to no return. Money can lose value due to inflation.

Pros of investing: Higher potential returns, can offset inflation, better for long-term goals. Cons of investing: Higher risk, no guarantees, may take a few days to get cash, may have to pay penalties for getting out of investments early.

When to save versus when to invest

Save money when: You need money in less than three years, or your goal is less than three years away; you don’t want to risk losing any of your money; you need fast access to your funds; you want FDIC insurance for your savings.

Invest money when: You have at least 3-5 years until you need your money or reach your goal; you’re willing to risk in exchange for a higher potential return; you want your money to grow; you can assume risk within the stock market volatility.