Everyone wants to be richer and the best short term investments can help you get there.
While playing the lottery or hitting up the casino aren’t safe ways of making a lot of money fast, there are a variety of short-term investment options that pay off without the wait. Learn about the best short-term investments on the market and how you can use them to make money without wasting time.
1. High-Yield Savings Accounts
Average interest rates: 1-2 percent
There’s still no better way to make money over the short term than a good savings account. The risk involved in putting your funds in a savings account is minimal, and there are a lot of options out there that will allow you to collect more than 2 percent per year on your investment.
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The bank you use for checking may also offer the option of opening a savings account, but you should shop around to make sure you get the best deal. Compared to some of the highest-performing savings accounts on the market, it’s likely that the option your bank offers won’t provide you with the returns you’re looking for.
If you’re looking for the highest interest rates possible and you don’t mind working with a less-established institution, Investors eAccess currently takes the cake at 2.50 percent APY. PNC Bank offers 2.35 percent APY, and State Farm follows closely at 2.25 percent APY.
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You might prefer to work with the most trusted savings institutions in the country such as Marcus by Goldman Sachs, which offers 2.25 percent APY. American Express National Bank High Yield Savings offers 2.10 percent APY, and Barclays Online Savings provides 2.20 percent APY.
• Investing in a savings account is one of the safest ways to receive reasonably high returns on your investment
• When you put your money in savings account, your investment is insured
• Some banks require minimum investments to receive interest
• You may have to wait a year to collect your interest
• Some savings accounts have insurance limits that could leave your investment exposed
• Under federal law, Regulation D prevents you from making more than six withdrawals or transfers from your savings account per month
2. Money Market Accounts
Average interest rates: 1.5-2.0 percent
When you open a savings account with a bank, your bank can’t use your money to make other investments. However, banks can use the money you invest in money market accounts (MMAs) to invest in other types of funds, which makes these types of accounts more attractive to lenders.
The best money market accounts can earn you 2% to 3% back.
Some banks offer money market accounts with interest rates as high as 2.30 percent APY, which are significantly higher than the rates for most savings accounts. There are some disadvantages to money market accounts, however; most money market accounts require initial investments, and depending on the account, you might have to invest $1,000 to $10,000 to get started. Plus, you can only withdraw from your money market account six times per month.
Depending upon the amount of cash you have, MMA accounts can be one of the best short term investments.
Compared to certificates of deposit (CDs), MMAs are far less risky. While you’ll have to pay stiff penalties if you withdraw from your CD early, you can withdraw from your MMA any time you want without any fees.
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Keep in mind that MMAs are different from money market funds (MMFs), which are sometimes called money market mutual funds. MMFs aren’t insured by the Federal Deposit Insurance Corporation (FDIC), and their interest rates fluctuate. Plus, these funds got a bad name after dozens of MMFs nearly failed during the 2008 financial crisis due to bad lending practices.
• Higher interest rates than savings accounts
• Withdraw up to six times per month
• Fixed interest rates
• Some MMAs require initial deposits
• These accounts don’t generate as much interest as riskier investment vehicles
3. Short-Term Bonds
Average interest rates: 1 percent and upward
Shot term bonds can be another one of the best short term investments.
There are two types of short-term bonds: government bonds and corporate bonds. A bond is when you provide a government or corporate entity with money that it then pays back with interest at a later date.
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Unlike savings accounts and MMAs, there’s no guarantee that you’ll receive your investment back when you take out a bond; if the corporation you invest in defaults, for instance, you’ll lose your investment. Government bonds are less risky, and you can purchase these bonds from the federal government or choose municipal bonds, which are issued by cities and states.
However, government bonds have lower interest rates than corporate bonds. In general, the riskier the bond, the more that it pays off in the long term. Taking out corporate bonds is more like gambling than investing, however; if you bet too big and put your life savings into a bond that goes bad, you could lose everything.
• High interest rates
• Multiple options available
• Corporate bonds are risky
• Government bonds have low interest rates
• If the corporation you invest in fails, you could lose your entire investment
4. Peer-to-Peer Loans
Average interest rates: 5 percent or more
Peer-to-peer loans can be one of the best short term investments for a number of reasons.
Online peer-to-peer lending platforms give you the opportunity to work outside traditional financial institutions and rake in high interest rates at the same time. Platforms like Lending Club and Prosper allow you to give money directly to consumers or businesses that need extra cash, and these individual or corporate entities will then pay your money back with interest.
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Online peer-to-peer lenders use complex credit analysis methods to determine whether borrowers are creditworthy. If you decide to work with borrowers who have relatively poor credit scores, you’ll receive better interest rates, but you’ll expose yourself to greater risk of losing your investment.
You can reduce the risk of peer-to-peer lending by diversifying the loans you offer. Instead of offering one person $5,000 to remodel their house, offer 10 people $500 each for smaller projects. The more you diversify your loans, the greater likelihood you have of enjoying positive returns.
The major drawback of using peer-to-peer platforms is that you won’t see all your money for at least three years. Both Prosper and Lending Club have three-year minimum repayment agreements, and you’ll also have to pay a service fee to use these platforms. However, you’ll have access to payments from your borrowers as soon as they are processed, and you can then withdraw or reinvest these funds.
• Incredibly high interest rates
• Cutting-edge online lending model that eliminates the middleman
• You can withdraw funds with interest as soon as your borrowers make payments
• You can lend to multiple borrowers to reduce your risk
• Lending directly to borrowers is inherently risky
• This type of investment is not insured by the FDIC
• You must pay service fees to use online peer-to-peer lending platforms
5. Certificates of Deposit
Average interest rates: 2.50-3.50 percent
CD accounts consistently rank as one of the best short term investments. For good reason, too. Investing in a Certificate of Deposit (CD) is something like planting a seed and waiting for a tree to grow. While these types of investments have high interest rates, you won’t be able to access your funds until you’ve reached a predetermined maturation date.
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CDs are insured by the FDIC, which means that you have no risk of losing your funds when you choose this type of investment vehicle. The only major risk of investing in a CD is that you might miss out on a better investment while you wait for your funds to mature.
If you decide to withdraw from your CD before the predetermined end date, you’ll have to pay hefty fees. Most CDs last between three and five years, and the longer you let your funds mature, the higher interest rates you’ll enjoy.
In some cases, you may be able to arrange to receive monthly payments from your CD when you make your agreement. Taking money out of your CD every month, however, reduces the amount of money you’ll receive when your fund matures.
• CDs have high interest rates
• The FDIC insures these investment vehicles
• You’ll have to pay a significant fee if you want to withdraw funds from your CD early
• Electing for monthly withdrawals from your CD reduces the amount of interest your fund will accrue
• CDs have extremely low liquidity
6. Cash-Back Credit Cards
Average interest rates: Up to 5 percent in certain categories
Believe it or not, the right credit cards can make for the best short term investments. As someone who regularly shops at Whole Foods, their credit card offers 5% cash back – not a bad deal on groceries.
You might not think of cash-back credit cards as investment vehicles, and you’re technically right.
Credit cards don’t require initial investments, and you’ll end up losing money in interest charges if you put funds on your credit card and let them sit. If you use cash-back credit cards correctly, though, you’ll receive significant returns on everyday purchases that you’d make anyway.
The Chase Freedom Unlimited gives you 1.5% to 5% cashback.
Some cash-back credit cards, such as the Chase Freedom Unlimited card, give you 1.5 percent cash back on everything you purchase. The Chase Freedom card, however, gives you 5 percent cash back on various rolling categories. For one month, for instance, you might receive 5 percent back on groceries, and the next month, you’ll get 5 percent back on gas.
The Chase Sapphire Preferred card goes even further. This card gives you $500 back if you spend $4,000 within 90 days of receiving your card, and Chase waives this card’s $95 per year fee for the first year.
Just remember that cash-back credit cards have a significant downside. If you end up with more credit card debt than you can handle, you could land yourself in a serious debt hole. Credit card debt is nothing to trifle with; credit card companies routinely charge between 15 and 20 percent APY.
• Great way to receive “interest” on everyday purchases
• No initial investment is required
• It’s generally easy to get acceptance from credit card companies if you have good credit
• You could face serious interest rates if you don’t pay back your debt on time
• Opening a credit card isn’t technically a true investment
7. Pay off Your Debt
This could be the best short term investment here. Because if you want to improve the bottom line on your bank statement as quickly as possible, you should focus on paying off your debt. Between investing your money and using that money to pay off debt, getting rid of your debt will make you wealthier faster. This is like a 1:2 punch.
In fact, one strategy is just that: we’ll call it to the 1:2 punch. Pay a large chunk of your debt than, in the same breath, circle back and invest that same amount–whether it’s in a Wealthfront, Robinhood or another investment account.
Take $500, use that to pay off a chunk of debt, than take another $500 and build your wealth with it.
That’s the 1:2 punch strategy, and it’s the best short term investment you can make in yourself.
Credit card debt is pernicious, and you’ll definitely lose more money than you’d make with investment interest if you don’t pay off your credit cards. Do your best to become debt-free before you pursue other investment options.