This content is created by AP Buyline in accordance with AP’s editorial guidelines and supervised by AP staff. Our evaluations and opinions are not influenced by our advertising relationships, but we might earn commissions from our partners’ links in this content. Learn more about AP Buyline here.
In a nutshell
Short-term investments are designed to provide you with a little extra yield while still allowing access to your money.
- In general, you won’t see potential gains as high as what you’d see with longer-term, riskier assets like individual stocks.
- However, many short-term investments are relatively stable and can help you meet some of your short- to medium-term goals.
High-yield savings accounts
A high-yield savings account provides better returns than you get from keeping your money in a cash account, like a checking account. The yield is variable and often based on market conditions. Interest is deposited into your account at regular intervals.
High-yield savings accounts can make sense for use as an emergency fund or as a place for money you need to access in the short-term for specific goals, like a down payment on a house.
Highest APY
Western Alliance Bank High-Yield Savings Premier
Highest APY
Western Alliance Bank High-Yield Savings Premier
APY
5.31%†
Min. balance to earn APY
$0.01
Risks
The main risk with a high-yield savings account is that you if you set-it-and-forget-it, you may potentially miss out on higher returns if interest rates go higher. Banks advertise the best rates on new accounts, but they don’t often raise rates on existing accounts. As a result, the money could have lower buying power.
Most money in a high-yield account is insured by the FDIC (banks) or NCUA (credit unions). As a result, you won’t lose money — up to $250,000 — if the financial institution fails.
Rewards
Check different online accounts to find higher yields than what you’d see with a traditional savings account. In some cases, you might find a bank or credit union that will connect your high-yield savings account to another account for round-ups or rewards.
Liquidity
Money in a high-yield savings account is extremely liquid. You can transfer it between other accounts at the same bank and withdraw money fairly easily. It’s important to check for withdrawal limits, though, since some accounts might have restrictions on the number of certain transactions you can make per month.
Where to get it
There are many banks and credit unions, especially online, that offer high-yield savings accounts. Shop around to find the best high-yield savings accounts.
Money market accounts
In many cases, money market accounts function similarly to a high-yield savings account but might come with a debit card and check-writing privileges. They often have fewer restrictions than savings accounts while offering competitive yields.
Money market accounts can also be ideal for an emergency fund or for preparing for short-term goals.
Risks
Loss of buying power due to inflation over the long run is one of the biggest risks. Another risk, though unlikely, is a bank default. Many banks and credit unions offer money market products, so check to make sure the institution has the appropriate insurance so you don’t lose your money.
Rewards
For the most part, the higher yield versus what you’d see with a traditional checking or savings account is considered the reward.
Liquidity
Money market accounts are highly liquid. You might need to maintain a relatively high balance to avoid some monthly fees, however. Additionally, some banks have limits on the number of withdrawals you can make per month.
Where to get it
Money market accounts are available at most banks and credit unions. Shop around for the best rates.
Short-term corporate bond funds
Bonds issued by major companies are called corporate bonds, and many are considered high-quality. Purchasing shares of a bond fund can allow you exposure to a wide swath of bonds, and you can potentially sell your shares of the bond fund if needed.
Short-term corporate bond funds can work well for those who want to receive regular interest payments as they save for short-term goals or look for a way to supplement their income.
Risks
There’s no guarantee that you won’t lose some of the principal if the fund fails or some of the underlying assets fail. However, corporate bonds are generally considered relatively safe, especially if you’re investing in a diverse fund.
Rewards
Regular interest payments from the bonds in the fund are the main reward, which could potentially supplement your income. Additionally, because the bonds are in an overall fund, if one or two bonds don’t perform well, it doesn’t have as big of an impact.
Liquidity
Bond funds are, in general, fairly liquid. You can buy and sell them while the market is open, although it can sometimes take a few days to settle the transaction so that you can withdraw your cash.
Where to get it
Most online brokers offer bond mutual funds — including index funds — and exchange-traded funds (ETFs).
Public App
Public App
Minimum investment
$0 to open an account, $5 to begin trading
Investment offered
Stocks, bonds, exchange-traded funds (ETFs), U.S. Treasuries, a high-yield cash account, crypto and royalties.
Fees
U.S.-listed stocks and ETFs, commission-free; after-hours trades and over-the-counter (OTC) trades, $2.99 per trade; Treasuries, 0.05% per month of your Treasury investment.
Short-term U.S. government bond funds
As with corporate bond funds, it’s possible to access short-term bonds — called T-bills — issued by the U.S. government through a bond fund. (We’ll talk about buying directly through the U.S. government portal TreasuryDirect below.) These bonds are considered a “risk-free” investment because they are guaranteed by the full faith and credit of the United States government. Bond funds allow you exposure to a broad range of bond maturities without having to build your own bond ladder with bonds that mature over different periods.
Risk-averse investors can benefit from the stability and relative safety of U.S. bonds as they invest for short- to medium-term goals and build a stable income supplement.
Risks
There is always the potential that the United States won’t repay its obligations, but that’s often considered a remote possibility. Some bond funds might not beat inflation, although there are some Treasury assets, like Treasury Inflation Protected Securities (TIPS), that are pegged to inflation.
Rewards
You can usually count on regular interest payments.
Liquidity
Bond funds are generally more liquid than individual bonds, especially if you purchase U.S. short-term government bonds. These funds can usually be purchased and sold when the markets are open.
Where to get it
Most brokers, including online brokers, offer access to short-term U.S. government bond funds.
Short-term municipal bond funds
These offer access to state and local government projects. These smaller governments fund their infrastructure by selling bonds, and you can access those bonds through bond funds.
Municipal bond funds can be attractive for those who want a slightly higher return and potential tax benefits.
Risks
While rare, it’s possible that a municipal government could fail and you could use your principal. According to Moody’s credit rating agency, there have been 115 municipal bond failures in the U.S. since 1970. In general, though municipal bond funds are considered relatively safe.
Rewards
Regular interest payments, as well as some tax benefits, might be available when you focus on short-term municipal bond funds.
Liquidity
As with other bond funds, you can make your purchase when the market is open, as many of these funds are traded regularly. You might need to wait for settlement.
Where to get it
Many brokers offer access to municipal bond funds, although some might require a minimum investment.
Money market mutual funds
Money market mutual funds are different from money market accounts. With these mutual funds, you get access to a range of low-risk investments, such as Treasuries, municipal bonds, bank securities and other “cash-like” assets.
These can be ideal for those who want fairly safe short-term returns that are higher than they’d see with a cash account.
Risks
Because these funds aren’t insured by the FDIC or NCUA, there’s a chance of loss.
Rewards
You’re likely to see stable returns and potential income.
Liquidity
It’s fairly easy to access the money in a money market mutual fund, and you might have check-writing privileges, although there might be limits on withdrawals.
Where to get it
Many brokers offer access to money market mutual funds, and some banks and credit unions with investment services might offer them.
No-penalty CDs
These are certificates of deposit (CDs) that won’t penalize you if you decide to take the money out before maturity.
No-penalty CDs can work well for those who have a set timeline for their goals but still want to be able to get the money if an emergency comes up. They can also work well as part of a ladder strategy.
Risks
Inflation is one of the biggest risks, as these CDs are usually protected by government-backed insurance.
Rewards
You might get a higher yield on a CD than a savings account, although no-penalty CDs often have lower yields than CDs that come with penalties.
Liquidity
The process of accessing your money might have a few hoops, but these are generally liquid and you don’t have to pay the interest penalty usually associated with CDs.
Where to get it
Some banks and credit unions offer no-penalty CD products, but they aren’t as common as “regular” CDs that come with interest penalties.
CIT No-Penalty CD
CIT No-Penalty CD
APY*
3.50%
Min. deposit
$1,000
Term
11 months
Treasury bills
Sometimes called T-bills, these are issued by the U.S. government and have maturities of four, eight, 13, 17, 26 and 52 weeks. Treasury bills don’t earn interest in the conventional sense. Instead, when you buy them from TreasuryDirect, the Treasury subtracts less than the face value of the bond sale from your bank account and credits you with the full amount at the bond’s maturity date. Since the Federal Reserve Bank started raising interest rates in 2022, these bonds have had greater yields than longer-term Treasury securities.
If you have a specific goal in mind and you want to get a little extra yield on your money while you prepare for a purchase, T-bills might make sense.
Risks
Risks are minimal, as T-bills are backed by the U.S. government and the maturity dates are short.
Rewards
Stable returns and access within a year are the main rewards.
Liquidity
You still need to wait until maturity, but because the terms are so short, you can usually access the money relatively quickly.
Where to get it
TreasuryDirect is one of the easiest places to purchase T-bills. Some major traditional brokerages can also help you purchase Treasury bills.
Peer-to-peer (P2P) lending
With peer-to-peer lending, you lend your money to others who want to get a personal loan through a platform that acts as a mediator. Two popular sites are Yieldstreet and Prosper. You receive regular interest payments until the loan is paid off.
P2P lending can work well for those who have short- to medium-term goals and who have slightly higher risk tolerance.
Risks
P2P lending comes with higher potential risk than some other short-term investments because there’s no insurance and no guarantee that the borrower will repay their loans. Some P2P platforms grade the loans, however, so you can make a more informed decision about risk.
Rewards
Generally, the potentially higher return from P2P lending as compared to bonds is the reward, as well as potentially regular interest income.
Liquidity
In many cases, you must keep your money in the account until it’s repaid. You might be restricted only to withdrawing money that has been returned to you as part of principal plus interest payments.
Where to get it
Specialized platforms mentioned above offer access to P2P lending.
Related: Best peer-to-peer (P2P) loans
TRADITIONAL PEER-TO-PEER LENDING
Prosper
TRADITIONAL PEER-TO-PEER LENDING
Prosper
Loan amount
$2,000 to $50,000
APR
6.99% to 35.99%
Term
2 to 5 years
More on short-term investments
What is a short-term investment?
A short-term investment is one in which you hope to access the money in one to three years. You don’t expect to hold onto the asset for a long period, or you know that you’ll withdraw money in a short time.
What makes a good short-term investment?
Good short-term investments are those that offer a high degree of liquidity, as well as relatively safe and stable returns.
Setting objectives
When setting objectives, you might want to look for assets with relatively high yields as compared to traditional cash accounts, but you probably won't want something with a very high — but volatile — return.
Often, the goal with short-term investments is to be able to access the money fairly easily and within a short time period. Liquidity and access are likely to be the objectives, as opposed to long-term wealth-building.
Managing risk
In general, you can manage risk by choosing assets that are insured or backed by the government. You can also look for assets that have higher yields to reduce the impact of inflation.
Tips for investing money for five years or less
- Look for investments that will offer you relatively easy access to your money without penalty.
- Compare yields, but look for safety and stability of returns.
- Don’t expect to see big returns for your investment.
Frequently asked questions ( FAQs)
What investment gives the highest short-term return?
The relative high returns depend on a number of factors, including market conditions, risk and the asset’s performance. In general, you’re more likely to get higher short-term returns with P2P lending, although some municipal bond funds, short-term CDs and high-yield savings accounts offer competitive returns.
Can you use a robo advisor for short term investing?
Yes, it’s possible to use a robo-advisor for short-term investing. You can adjust your risk tolerance so they will choose short-term funds or shorten your timeline for selling assets and taking money. Additionally, some robo-advisors also offer high-yield cash management accounts.
What are the best tools for investing in the short term?
Many online brokers offer calculators and other tools that can help you identify short-term investments and find assets that will work in your portfolio.
This content is created by AP Buyline in accordance with AP’s editorial guidelines and supervised by AP staff. Our evaluations and opinions are not influenced by our advertising relationships, but we might earn commissions from our partners’ links in this content. Learn more about AP Buyline here.
