If you’re planning to save for a short-term goal and are unsure where to start, there are quite a few options to consider. From high-yield savings accounts to robo-advisors, we’ll walk you through six of the best routes for short-term savings, and get your money working harder today.
Discover High-Yield Savings Accounts
In the world of short-term savings, high-yield savings accounts claim a top spot. They offer much greater interest rates than traditional savings accounts.
While you won’t get rich overnight, your money will grow at a faster pace without any risk, as these types of accounts are usually insured by federal organizations like the FDIC-insured institutions in the US.
Keep an eye on potential account fees or balance requirements to ensure that it’s a good fit for your financial needs and goals.
Explore Short-Term Certificates of Deposit
If you can commit your money for a fixed, short period, typically from three months to a year, consider short-term certificates of deposit (CDs). They often provide higher interest rates than many savings accounts. Your funds are locked in until the term ends but in return, you reap the benefit of boosted yields.
The downside is that some banks may impose penalties for early withdrawals before maturity, so do your homework first to make sure there’s no pressing need for that cash during CD’s tenure.
Open a Money Market Account
If you’re looking for a product similar to savings accounts but often with higher yields, something like a money market account could be suitable.
This type of account typically requires a larger initial deposit and maintains greater balance requirements to earn the highest rate. On the plus side, many money market accounts also offer check-writing privileges.
It’s important you read the fine print about fees and penalties before choosing this option. Having high liquidity and decent returns make these accounts ideal for your emergency fund or any goal that is more than one year away.
Investigate Treasury Bills and Bonds
Treasury bills and bonds are government-backed securities that can be a safe option for short-term savings.
You essentially lend money to the government in return for a guaranteed payback at a later date. They offer low-risk but moderate returns, commonly higher than traditional bank savings rates.
However, you should note that your money is tied up until maturity unless you sell these securities before they mature in the secondary market. Consider this path if the stability of principal investment is more important than high returns or liquidity.
Check Out Online-Only Short-term Investment Options
The digital age offers innovative short-term savings options such as online-only banks and investment platforms.
These are often stripped of the overhead costs traditional institutions have, allowing them to pass on the savings to customers in the form of attractive interest rates. Furthermore, their high accessibility makes for a convenient banking experience.
Credibility is key when choosing an online platform, so ensure it’s federally insured or well-reviewed before you invest your money into an account there.
Consider Using Robo-Advisors for Temporary Investments
In recent years, robo-advisors have emerged as another sensible short-term savings alternative. These digital platforms construct and maintain a diversified portfolio on your behalf, usually through ETFs or mutual funds.
It’s an easy-to-manage option with relatively low investment requirements, making it appealing to beginners in particular.
Moreover, they are often available at lower costs than traditional financial advisors and can provide automated strategies based on your financial goals and risk tolerance. Just look into the potential for fees being involved before deciding if this is the route for you.
Wrapping Up
You need to look at your own circumstances and goals to pick a savings product that’s suitable, so do your research and be realistic about what you can afford to set aside in order to make an informed decision.
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