Let’s observe the best short term investments that give us option to retire rich.
Short Term Investing Explained
First, let’s define what a short term investment is. This is money that you will need on a short term basis, within 5 years. You don’t want to add a lot of risk to this investment, because doing so could cause you to lose the money when you need it the most. Over a long period of time risk and fluctuations tend to work themselves out and give you a higher rate of return, but we need this money soon, so we should focus on avoiding risk.
Uncovering The Basic Short Term Investment Vehicles
There are a few different options that we have for short term investments that are very safe and you are extremely unlikely to lose any money in, including putting the money in a jar, putting it in a savings account at your local bank, in a high-yield online savings account, or a certificate of deposit.
Under Your Mattress - A lot of people might think this is a very safe place to put money, however it’s really a bad idea to leave a pile of cash at home. There’s always a chance that a thief could steal it, or it could get destroyed in a natural disaster or a fire. In addition, your money is getting less valuable over time, because of inflation. This is probably the least safe place you can put your money, because you’re guaranteed to lose value over time.
Savings Account at The Bank - Your money will be very safe at your local bank, however you won’t get much back for it. The national average for savings accounts is about 0.6%. Your money will be readily accessible in your local bank’s savings account and you know it will be there. This is probably not the best option because of the low rate of return.
Money Market Account - Operates just like high yield savings accounts, except account minimums are often higher. See High-Yield Savings for more info.
High-Yield Savings Account - This is a great option for short term savings. You can find a much better rate of return than your local bank. It’s basically a savings account at an online bank that you can transfer money back and forth between your checking account. I suggest that you use ING Direct for your online savings account. It currently offers 3.4% APY on your money, which is not the highest, but they have great customer service and excellent security features. Another good option is WaMU checking/savings.
Certificate of Deposit - Certificates of deposit offer a little bit better rate of return than high-yield money savings accounts, however they’re not ideal for short term investing. Usually when you are saving money, you want to put a little bit in at a time until you save up and have all the money for the purchase. Certificates of deposits are inflexible in the time period that you want to invest the money, and you can only do lump sum investing.
Overall, a high-yield money savings account is definitely the best place to go for your short term savings and investing needs. There’s not any risk to speak of (at least until interest yields drop) and you’ll get a decent rate of return on your money.
Matthew Paulson writes for Getting Green (feed), a financial blog that exists to make you a better steward of money. Getting Green will provide you with daily wisdom and practical tips to help you grow financially. Be sure to check out Matthew’s blog, and watch out for more short term investments.
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There are so many more online banks that are offering better rates than ING these days - several over 5%
Or you can buy 4-week T-bill with a minimum of $1000 and rate of 5.40% APY and state tax income exemption. And the money is only locked for 4 weeks.
I am currently using Eloan.com for my savings account. The current APY there is 5.25%. The interest accrues daily and is credited to my account once per month. I’ve been thinking about loaning some money at Prosper.com. The loans are all for 3-year terms, so this could be another option for short-term investing.
By the way, ING isn’t really the best choice of online savings account. There are many good, reliable, and reputable ones out there. And putting the recommendation of ING together with the email for sign on bonus looks like a sale pitch to me. It will be better if you also disclose that you will get $10 bonus as well.
Saving advice - I agree. I have an account with Emigrant Direct; they pay around 5.05%, but I’m sure plenty of banks can beat that.
Chris - Prosper has received a bit of negative press lately, due to some defaulting loan issues. But I don’t think the business model is busted just yet. Have you opened an account yet? I need some motivation.
Sun - You know you’re stuff, as usual. I guess Matt forgot the talk about the other side of the coin on that one. Your request seems reasonable, so I’ll make the necessary changes.
I know ING Direct doesn’t have the absolute highest interest rate, but its customer service, security features, deposit bonuses, and fast ACH transfer rates more than make up for it.
Consider reading this Article:
http://getting-green.blogspot.com/2007/02/why-i-use-ing-direct-even-though-there.html
HSBC is currently at 6% until April 30.
I use Emigrant, HSBC, and ING and I have been with ING for nearly 5 years, however, except the sign on and referral bonuses, I didn’t find any thing more attractive than other banks. And since you are talking about “short term investing,” what’s the goal? Return or customer service? Also whether it can really “make up for it” or not depends on the size of the deposit. The sign bonus is significant only for a small account. Since ING has been around for quite some time, most of them who want to have an account with already have one. Finally, 3-day ACH is quite a standard time for most banks, not unique to ING.
I will vouch for Sun in the last comment. 3-day ACH is standard for most banks and is not an issue.
I have been a loyal customer to ING for years…but after some banks started offering higher interest rates , ING is no longer a good option for returns. For the record, there are 38 banks offering savings account or money market accounts with interest rates greater than ING Direct.
I use Emigrant. Their rates are usually above 5%. I don’t think it’s very productive to chase the highest rates, but then again I wouldn’t sign up for cheaper rates either.
5 years? put the money to work in the stock market. If short term means 1 or 2 years, you should consider high yield bonds.