Looking for the best short-term investments that’ll help your extra money earn income? In this article, I share investment advice on the best options for short-term investments in the market today are a smart way to earn fast cash!
There is, of course, no legal way to make a 100% return on your investment overnight, but there are certainly ways to make a hefty chunk of change without having to wait 5-10 years to do so!
In this article:
- What Are Short-Term Investments?
Best Short-Term Investments: 9 Opportunities for Making Fast Money
What Are Short-Term Investments?
Short term investments have two general characteristics:
- Have short-term goals – such as time frames of no more than one or two years
- High liquidity – can be easily converted back into cash when needed
1. Bank Deposit Accounts
One of the best ways to make your money earn income in the short term is through bank deposits. There are two types of bank deposits that provide opportunities for fast money: a savings account and a checking account.
A high-yield savings account is one of the best short-term investments because of three things:
- Competitive interest on your money – such as a return on deposit as high as 2.00% annually;
- Very high liquidity – You can withdraw the money you invest any time; and
- Risk-free investing – Bank deposits are insured by the Federal Deposit Insurance Corporation up to $250,000 in total deposits per depositor, ownership category, and bank.
Checking accounts typically offer very low-interest rates, which typically disqualifies them as an option for short-term investments. Some checking accounts offer cash bonuses for simply depositing money in them, making them short-term investment options, too.
2. Certificates of Deposit
Similar to bank deposits, a Certificate of Deposit provides investors with short-term investment opportunities. Also referred to as “CDs,” certificates of deposits are available from banks, thrift institutions, and even credit unions.
There are three good reasons to invest in CDs over the short term:
- High liquidity – Maturity of one year or less, and you can get your money any time before maturity;
- Good return on short-term investments – Competitive interest rates; and
- Risk-free investment –FDIC-insured or guaranteed for up to $250,000; banks guarantee interest income/rate.
3. Money Market Deposit Accounts
Not to be confused with money market mutual fund investments, money market accounts are similar to bank accounts and CDs. These similarities include:
- Guaranteed return on investment – Guaranteed interest rates, which are comparable to CDs and high-yield savings accounts in banks;
- High liquidity – Maturity of one year or less and the ability to get your money any time;
- Check writing and debit card privileges; and
- FDIC-insured up to $250,000.
Some of the potential disadvantages investors may face with money market accounts include:
- Limitations on allowed transactions;
- Minimum maintaining balance, with charges if account balances fall below the minimum; and
- Transaction cost or fee.
Despite these, money market accounts are one of the best short-term investment opportunities around because its benefits outweigh its potential disadvantages.
4. Exchange-Traded Funds (ETFs) and Mutual Funds
Exchange-traded funds and mutual funds are like fraternal twins in that they’re not identical.
They’re twins because they’re both pooled funds that professional fund managers manage. As such, they’re the best for investors who prefer a hands-off approach to short-term investments.
In other words, they’re for those who prefer passive short-term investing.
There are two major differences between the two:
- Investors can only buy and sell mutual funds from and to mutual fund companies, while investors can invest in ETFs through major exchanges like the NYSE; and
- Mutual fund companies determine the value of mutual funds at the end of the day based on the collective market values of their underlying assets. On the other hand, the value of ETFs is determined by the market every hour, minute, or even second.
When people invest in pooled funds, they enjoy the following benefits:
- Instant diversification because investment managers spread funds across different assets;
- Convenience, because those who want passive income opportunities have the benefit of professional fund managers managing their short-term money; and
- High liquidity since they can easily convert their investments back into cash on any business day.
However, pooled funds like ETFs and mutual funds aren’t perfect. They have a flaw: risk.
Pooled funds don’t guarantee passive income on short-term money. Instead, those investing in these securities make money through increasing market values only.
Bonds are fixed-income securities that represent a corporation or government’s loan or borrowed money from the general investing public. They’re called “fixed income” because, like bank deposits, money market accounts, and CDs, they guarantee a certain amount of return to those who invest.
Some of the best bonds to invest in the short term include:
- Treasury Inflation-Protected Securities (TIPS);
- Municipal Bonds; and
- Corporate Bonds.
TIPS are excellent opportunities for short-term investments because:
- They’re guaranteed by the Federal Government, which means they’re credit risk-free;
- They’re liquid – You can easily sell them to get cash; and
- The Federal Government guarantees that the yield on a TIPS investment will never be less than inflation.
There are two ways to invest in TIPS: through the Treasury Department or through an ETF or Mutual Fund. Many investors would rather do it through an ETF or mutual fund to avoid taxation on the interest on their TIPS.
Prime corporations issue bonds. While their yields aren’t guaranteed to be better than inflation and aren’t backed up by the Federal Government, they’re still one of the best assets for short-term investing.
Corporate bonds, especially those traded on exchanges, are very liquid. They’re also issued by some of the country’s top corporations, which minimizes its credit risks.
As with TIPS, you can invest in corporate bonds directly or indirectly via ETFs or mutual funds. And because of higher credit risk compared to the Federal Government, they offer opportunities to earn higher potential yields, too.
6. Roth IRA
While a Roth IRA is intended to be a long-term investment, investors can use it as a short-term investment, too.
Unlike Traditional IRAs, contributions to Roth IRAs are already taxed. That’s why withdrawing contributions from Roth IRAs (before retirement) are tax and penalty-free.
By investing in a Roth IRA, investors can grow their money in the short term. When they need the money, they can withdraw up to the amount of the entire contribution and still have money left in the Roth IRA account, assuming the investment grew.
The only catch is that investors can’t withdraw their contributions’ earnings before turning at least 59 ½ years old. Otherwise, they risk having to pay taxes and penalties for unqualified withdrawals.
7. Peer-to-Peer Lending Companies
As bestselling author Thomas Friedman’s book title says, The World is Flat. By this, he meant that the Internet has made businesses compete on virtually equal footing all over the world.
One of the greatest innovations that the Internet has spawned is the peer-to-peer lending industry.
It used to be that those who needed money had to go to banks or lending institutions to borrow money. Those who had money to spare also had to go to banks and other financial institutions to earn interest.
With peer-to-peer (P2P) lending platforms, it’s easy for individual lenders and borrowers to get together and transact. They’re like loan exchanges, akin to stock exchanges, except they facilitate borrowing and lending between individuals.
8. Cash-Back Credit Card Rewards
Some credit cards give cash back rewards for charging specific amounts on their cards. If you already have a credit card, why not charge all your regular and necessary expenses to it?
Take, for example, household utility expenses and groceries. By automatically charging them to your card, you can qualify for cashback rewards that can accumulate during the year.
It’s like getting a return on a non-investment because you’re already spending on necessities anyway. Just limit your credit card use to essentials and always pay the bills on time to avoid penalties and charges.
9. High-Cost Debt Refinancing or Retiring
The interest in high-interest debts can be staggering. For example, a credit card debt of $50,000 that carries a 15% annual interest can cost up to $7,500 annually.
When a person can retire such a debt, he or she automatically frees up $7,500 in savings annually. It’s just like earning the same amount every year.
For those who don’t have enough money to comfortably pay off all high-cost debts, refinancing is an option. Refinancing involves borrowing money at a much lower interest rate to pay off existing high-interest ones.
Refinancing at a lower rate helps people to free up more money through substantial savings on interest payments. That’s an unorthodox way of getting quick money, right?
Short-term investments help people accomplish their investment short-term financial goals through a combination of good returns and high liquidity. Hence, it should be part of any investor’s financial knowledge and investment strategy.
10. Treasury Inflation-Protected Securities
Investing in Treasury Inflation-Protected Securities, or TIPS, is an investment in the US dollar itself. That is, the money you put into the account will grow if inflation rises, and… you would probably guess it will decrease if deflation occurs, but that’s not the case. If the US dollar does indeed become less valuable while your money is invested in the TIPS, you will get back an amount equal to the value of your original investment.
Because of this, investing in TIPS is risk-free. Especially since the US treasury, the organization that will be backing the investment is as trustworthy and fail-proof as any financial establishment can get.
11. Recurring Deposits
In just the same way as you can take out an installment plan on a new car, you can make installments on investments into a recurring deposit, or RD. When you invest, choose an amount and a tenure period between 6 months and 10 years. The money will be deducted from your bank account periodically over the tenure you selected to pay for your investment.
You’ll still receive interest on the amount you’ve invested, just like a standard fixed-rate loan. And of course, you will get your investment back in full at the end of.
Do you have other ideas for short-term investments? Let us know in the comments section below!