Short-term interest rates have been pushed to zero by the Federal Reserve.
As a result, short-term bond rates are close to zero, and in certain European nations, rates are even negative!
That is, consumers, businesses, and governments, for the most part, PAY the bank to store their cash.
All of this makes short-term investment extremely tough. Gone are the days when your grandma could invest in savings bonds and make a handsome return. Savings accounts produce almost nothing. To earn any kind of return now, you must be willing to take on more risk than you may have in the past.
That’s why I’m interested in cryptocurrency savings accounts and have deposited a tiny sum of short-term cash in Blockfi, where I earn 8.6 percent. This sort of account isn’t for everyone, but it might be a good option for a bank that pays.
Here are the greatest locations to deposit your money in the short term – whether it’s $10,000 or $100,000 – with little or no risk and the knowledge that your money will not be tied up for extended periods of time.
What I Look For in Short-Term Investing
The usual short-term investment is projected to increase for several months to a few years before being converted into cash or additional short-term investments. Short-term investments appeal to me as a method to safeguard funds that I may wish to spend effectively in the future. I don’t want to lose money, thus I’m not prepared to take big risks.
A good short-term investment must include the following features:
- Stability – There is a low historical chance of losing money over a short period of time.
Stocks don’t work for me here.
- Liquidity – I want to be able to access the investment and convert it to cash fast and easily.
Real estate is an example of a non-liquid investment.
- Low transaction costs — The cost of entering or exiting the investment should be close to zero.
(In the investing industry, “long-term” investments are typically decades-long, leaving opportunities for short-term investments that can span a few years.)
There are several short-term investing accounts accessible to you, and which one is best for you depends on your specific position and preferences.
Top 12 Best Short-Term Investments to Reduce Risk
- Blockfi Savings Account
- Bank Savings Accounts
- Money Market Accounts
- Alternative Investments
- Certificate of Deposits (CD)
- Roth IRA
- Checking Accounts
- Short-Term Bond Funds and ETFs
- 5-Year Treasury Inflation-Protected Securities
- Municipal Bonds and Corporate Bonds
- Pay Off High-Interest Debt
- Cash Back Rewards Offers
- Bonus Idea: Prosper
Let’s face it: a bank savings account isn’t going to earn you anything. That is why, of all the tasks on this list, opening a bitcoin savings account appears to be the most logical, and I have parked a considerable sum of short-term cash in this account.
You deposit money with Blockfi by purchasing a stablecoin (not actual cash). A stablecoin is a coin that trades 1:1 with the US dollar, meaning you can always exchange one stablecoin for one US dollar. Because your money is available at all times, it is incredibly liquid.
Blockfi, like a bank, lends loans to other parties, but the loans are in bitcoin. Blockfi can pay you up to 8.6 percent each year in stablecoin, which you can then convert for US dollars. 8.6 percent is more than 16 times what you’d get at the bank. So, what’s the catch?
A cryptocurrency savings account is not the same as a traditional bank savings account. There is no FDIC insurance on your money, as there is with a traditional bank. Concerns have also been raised about digital theft.
Blockfi does offer its own insurance for deposited funds that can protect against theft or other difficulties, but it is not clear how it differs from FDIC insurance.
Despite these concerns, I believe Blockfi is a viable bank substitute. If you’re interested, I recommend starting with a little amount of money (not all of it) and gradually increasing your investment based on your comfort level.
Cryptocurrencies are here to stay, and this appears to be the next step in banking evolution, but be prepared for some hiccups along the road.
1. Account for Online Savings
A high yield savings account might be the solution if you’re seeking a risk-free approach to earn interest on your money. You’ll earn a little bit of interest just by maintaining your money in these accounts.
Aside from creating an account and depositing funds, this technique involves absolutely little work on your part.
The finest high yield savings accounts provide competitive interest rates with no fees.
2. Investing Account
The finest money market accounts are now offering an APY that is extremely similar to one-year CDs while still providing rapid access to their assets. These accounts issue ATM cards, cheques, and deposit slip to depositors.
Money Market accounts are calculated based on the account balance rather than the amount of time you have invested your money. Because of all of these reasons, many people regard money market accounts as a form of “savings account on steroids.”
While there is less danger involved, you may be able to achieve a better rate of return.
3. Diversified Investments
Alternative investments are a component of a well-balanced and diverse portfolio. The issue is that many alternative investments are not very liquid and must be held for at least a few years. Real estate, for example, is a well-known alternative investment. The investor, on the other hand, is in it for the long haul unless you’re flipping properties.
This is why I’m enthused about two new short-term peer-to-peer investing ideas that I’ve discussed below. These investments are still considered alternative since they operate outside of the stock market, but fortunately for us, they do not have a 10-year time horizon!
Fundrise provides low-cost real estate ETFs online. Each investor buys and manages a single piece of real estate.
The Lending Club
Instead of purchasing stock in a corporation, you lend money to people or businesses through Lending Club. They repay you with interest!
Bonds of Value
Worthy Bonds allows you to invest in small companies by acquiring bonds from them. The investor (you) receives a set 5% interest rate.
4. Certificates of Deposit (CDs)
A Certificate of Deposit (CD) allows you to deposit money for a certain period of time in exchange for a guaranteed return regardless of what happens to interest rates during that time.
Make certain that you purchase your CD from an FDIC-insured financial institution (up to $250k is covered). The larger the return, which typically runs from 3 months to 5 years, the longer the duration of the investment.
CIT Bank, in my opinion, has the greatest CD product. There is no penalty for early withdrawal from their 11-month CD, and the rates remain competitive.
5. A Roth IRA
Because a Roth IRA is financed with after-tax income, you can withdraw your contributions at any time. Remember that you cannot remove your profits or you will be punished!
To put it another way, you may create a Roth IRA (recommendations below) and invest in mutual funds, ETFs, bonds, and other securities to earn a return on your money.
This money will grow anyway, maybe until you retire, but if you only want it to grow for a limited time, you can withdraw the contributions, which, if the market performs well, will be worth more than what you invested.
6. Checking Accounts Online
An online checking account, like an online savings account, may be used to meet short-term investing needs. Because the number of withdrawals isn’t limited, you enjoy many of the benefits of online savings accounts with even greater liquidity.
The best aspect is that online checking accounts frequently provide cash incentives! This significantly sweetens the offer, especially since loan rates are still cheap.
7. ETFs and Short-Term Bond Funds
Short-term bond funds are typically handled solely by a professional financial advisor. Bonds are less reliable than money markets, but they have the potential to generate a greater yield. These bonds are a market instrument that will pay out in variable monthly installments based on the market’s present position.
9. Treasury Inflation-Protected Securities with a 5-Year Duration
TIPS, or Treasury Inflation-Protected Securities, are government bonds that are inflation-indexed. TIPS have a fixed interest rate, but their underlying value grows with inflation as assessed by the Consumer Price Index.
You may only receive 0.5 percent in interest (paid semiannually), but the bond’s value may climb by 2.5 percent each year during a five-year period. As a consequence, at the conclusion of the period, your initial investment will be worth the same amount it was when you first made it. You will, however, receive a little amount of interest on top of it.
TIPS are available for purchase directly from the government at TreasuryDirect.gov
Due to the taxable nature of TIPS interest, most investors choose to invest in a TIPS ETF or mutual fund. A brokerage account is required to acquire shares of an ETF or mutual fund. If you want to create a new brokerage account, TD Ameritrade or E*Trade are ideal places to start.
10. Municipal bonds and corporate bonds are two types of bonds.
Municipal bonds are slightly riskier than TIPS and other Treasury investments, although the vast majority of municipalities do not fail on their obligations.
“Interest rate risk” is the more serious concern.
If interest rates rise in the market in a low-interest-rate environment, the bond’s value falls to compensate. If you could earn 4% on a municipal bond today, it would be a fantastic return. However, if interest rates rise and your bond loses 6% of its value, you’ll find yourself on the losing end of the equation. The fall in bond value, on the other hand, only affects you if you sell before maturity.
If you retain the bond to maturity, you will get a full refund of your initial investment plus interest. Because corporate bonds are not guaranteed by a state, local, or federal government, they are riskier than municipal and Treasury bonds. As is always the case, the increasing risk might result in an increase in your rate of return. The same issue with interest rate risk applies to corporate bonds; holding until maturity eliminates this one danger.
To trade individual bonds, bond mutual funds, and bond ETFs, you’ll need a brokerage account from a company like TD Ameritrade or E*Trade.
11. Eliminate High-Interest Debt
Are you looking for a high return on your investment? Get rid of your high-interest loans. If you have a credit card with a 15% interest rate and a $10,000 amount, you have the potential for a significant return on your investment.
Paying off the debt is equivalent to earning a 15% return on $10,000. You’re not only getting a wonderful return on investment, but you’re also saving money on future expenditures and improving your entire financial status.
It’s the ultimate win-win situation.
You have the ability to pay off high-interest debt on your own.
Credit Card Obligation
Credit card debt is steadily increasing in the United States as customers feel strained at the end of the month. If you have credit card debt, I strongly advise you to devise a plan to pay it off as quickly as possible.
Mortgage Debt Interest rates are reaching record lows, so if you haven’t refinanced your mortgage yet, now is an excellent opportunity.
If you can save 0.50 percent or more on your loan, you might possibly save tens of thousands of dollars.
Not many investments can compete with that.
Debt from Student Loans
Do you not have a mortgage?
You almost certainly have student loans, so be sure to refinance if you qualify; it might save you hundreds in the long run!
When it comes to debt repayment, the arithmetic is simple: if your loan is now at 7 percent and you refinance at 3 percent, you’re getting a 4 percent return on your money!
Offers for Cash Back on Purchases
Although investing $65,000 has little to do with credit card rewards, we wanted to share this idea from Holly Johnson, our resident credit card expert.
According to Johnson,
“credit card rewards may yield enormous returns with absolutely little work on your side if you truly want to earn some quick money in the near term.”
This is how it works:
Assume you signed up for the Chase Sapphire Preferred® card in order to take advantage of the massive signup bonus.
Also Read: The Advantages of Using an Outsourced Financial Controller
The current promotion will give you 50,000 points worth $500 after spending $4,000 on the card within 90 days.
And, because the $95 yearly cost is waived the first year, you may receive this incentive without spending any money.