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5 popular short-term investment options

Of late, the stock market has become increasingly unpredictable; therefore, many investors have become skeptical about long-term investments. In such an economic scenario, investing short-term is safer. Short-term financial products can be of great help, especially if you sense that you might be needing the money anytime soon. Typically, most short-term investments have little or no risk involved, and usually, don’t last more than three years.

5 popular short-term investment options

There are various kinds of short-term investment options which can meet your critical financial requirements. Following are some of the options that you can consider.

  • Certificates of deposit (CD) – Usually offered by banks and credit unions, certificates of deposit (CD) is a type of time deposit account that functions like a promissory note. As an investor, you are mandated to keep your money in the account for a stipulated period, and in the bargain, you receive a competitive and fixed rate of interest. The interest rate is derived from the amount of money you have invested and the respective duration period which falls between a few months to five years. A penalty is levied when the money is withdrawn before the maturity date.
  • Savings account – A low-risk investment, keeping your money in a savings account offers you a coverage of up to $250,000 from the National Union Share Insurance Fund or FDIC. Generally, traditional banks don’t provide lucrative interest rates. Therefore, you have an option of investing in online high-yielding savings accounts as they don’t have to incur the overhead expenses like a brick and mortar bank. The great thing about savings bank is that you can withdraw your money anytime without incurring any penalties. Just remember that you create a savings account only in financial institutions insured by the FDIC or NCUSIF.
  • Independent short-term bonds – If you are looking for higher returns, then consider investing in short-term bonds. They have a considerable amount of risk involved as they offer paybacks according to the fluctuating market conditions. Usually, they mature within a span of two years and are offered by municipalities (also referred to as “munis”) and corporations.
  • Peer-to-peer lending – Peer-to-peer lending simply means offering loans to people, the only difference being that there is no bank involved. If you have some extra money, you can lend it to a person with a specified rate of interest which are mostly lower than what traditional lenders propose. Since these are unsecured types of loans, the level of risk is comparatively higher for the lender. Therefore, ensure that you contemplate over your decision and choose the best peer-to-peer lending medium.
  • Treasury Inflation Protected Securities (TIPS) – These are government bonds that are designed to secure investors’ interests from the undesirable effects of inflation. The TIPS’ interest rate is definite, but the basic value of the security increases with inflation which is determined by the Consumer Price Index. Investing in such a short-term product, also requires you pay federal tax. Although, the interest you receive is exempted from local and state income taxes.

Before purchasing any of the short-term financial products mentioned above, make sure that you understand the level of commitment, conditions, amount of money you have, and your short-term fiscal goals.

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