As an investor, anyone would prefer an investment option that gives great returns in short term. We often get queries from our readers that how can they invest their savings in short term investment options to make a good amount of profit. Well the answer is not so easy, there are abundant short term investment options but not all give the same returns.
So, today we will not only talk about The Short Term Investment Options but we are going to focus on The Best Short Term Investment Options.
Money Market Account
Currently, Money Markets are paying a more APY than CD’s. Investors who are familiar with the discipline of owning a CD have good chances to earn a higher return with a Money Market. The added advantage of money market is that investors can earn great return and also have immediate access to their funds.
The money market account holder also get ATM cards, checks and deposit slips. Money Market accounts are not based on the time duration for which you have invested, they are base on the account balance. You can shift your investment from money market to invest in other options.
Short Term Bond Funds and ETFs
Short term bond funds are the investment options that are managed by a professional advisor as a financial product. Bonds will give you higher return that what Money Markets offer but this investment options is not as stable as Money Markets. Bonds are financial products of the market and returns will move as market moves. Market fluctuations affect on bonds. Maturity if short term bonds is normally within 2 years or less.
Online Savings Accounts
If you want a guarantee that your investment will not have any negative returns and you want to earn a small amount of return, Online Savings Accounts come handy to your desires. Online Savings Account won’t let you lose anything and make sure that you will earn some return. Though return is not so great, but it’s guaranteed return.
If you invest your money in Online Savings Accounts, you get a guarantee that you will never lose the principal amount if you keep the total deposit below FDIC coverage of $250,000 at the bank.
It will provide you small but a risk free return on the mount that you invest. If we look at the interest rates, currently interest rates are at around 0.75% to 0.85%. Obviously it’s not that great return but if you are seeking a risk free return, this is an evergreen option for you.
It also provides you high liquidity. You can withdraw 6 times a month in most of the online banks. You will miss out the returns if you are looking at liquidity. There are many good quality banks which provide such services. To get more idea, you can visit a few online banks.
A Roth IRA
Roth IRA is basically a retirement account and not a short term investment option but it can serve as a short term investment option if used properly.
Look at it from this point of view: If you invest in other retirement accounts like Traditional IRAs and 401K etc. you can not withdraw your funds early without paying the withdrawal penalty. But in Roth IRA’s case is different.
With all other types of retirement accounts — from 401ks to Traditional IRAs — if you withdraw funds before retirement you get hit with an early withdrawal penalty and income tax.
The Roth IRA is different. Whatever amount you invest in your Roth is after-tax and that makes you free to withdraw your money at any time. Note that you can not withdraw the earnings from that contribution. You can withdraw your contribution and invest the same elsewhere. But make sure that you withdraw only if you really need money and no other option is left. Withdrawing this contribution to invest in other options will not make a good decision as this amount is saved for your retirement and many people lose retirement savings out of a greed to earn from short term investments. If you have any other plans set for retirement savings, you can go for withdrawal and invest the money in other options.
Benefits of using Roth IRA as Short Term Investment
- You will be able to withdraw your funds at anytime and invest the same in other high return giving options.
- Roth IRA gives you great returns and access to different modes of investment like mutual funds, ETFs, and bonds for greater return.
For More information - Know everything about Roth IRA
Certificate of Deposits (CD’s)
Banks always have multiple terms for their deposit accounts. Bank deposits range from 3 months to 5 years and that depends on the investor’s needs. CD is an investment option where an investor can incest his/her cash amount for a specific length of time. The longer the term of investment, the higher the yield will be. You can withdraw your interest monthly or at the end of the CD. You get this flexibility in CD’s.
Note that if you want to withdraw your cash from CD’s before the maturity date, you need to pay the penalty worth of around interest of 3 months.