Guest post by Aiden White.
music selection: “Angry Chair” — Alice in Chains
Aiden White is a financial writer who lives in Foster City, California. She started her financial journey in 2015 and has been associated with consolidatecreditcard.org for last 6 months. Through her writing, she has inspired people to overcome their credit card debt problems and solved their personal finance based queries. Being a debt fighter in her personal life, her goal is to share innovative thoughts and knowledge in the debt communities. Get in touch with her at aidenwhitejoe [at] Gmail [dot] com.
It is a well-known fact for most of us that saving for retirement is very critical. Most of us do not focus on contributing to IRAs, 401(k)s and other “nest egg” investments.
But have you ever think about shorter-term savings goals? What will you do if you are in serious need of a big travel fund, or require a lump sum cash to buy a car or vacation home within the next couple of years? Where do you find enough resources to create an emergency fund?
If you have plans to buy a car or a boat within 3 to 5 years or you are interested to build an emergency fund, then you must plan a short-term savings strategy and meet your short-term financial goals.
There are various short-term investment options available to you. You should compare these options and choose the best as per your financial situation and preferences.
Best short-term investment options that increase your savings
Short-term investing is devoting your money for future (fewer than five years), and you’re going to get some good returns from it. Some of the best short-term investment options are:
1. Lending Club (Peer to peer lending)
Lending Club is one of the most popular short-term investment options which offers better returns (3-8% per year). This P2P lending (Peer to peer lending) platform helps you to invest in loans easily, to different companies and individuals.
The best part of this investment is diversity and high returns on a short-term basis (3-5 years). You can invest in a loan as low as $25. You are able to minimize the risks by diversifying your investment across many loans.
With higher returns, you might have to adopt higher risks too. There are several cases where loans go to collections. This investment is not FDIC-insured. You can’t also liquidate the loans in mid-term.
2. Certificates of Deposit (CDs)
Certificates of Deposit (or CDs) are a great short-term investment option that can earn good returns on your investments.
Certificates of Deposit are offered by banks, with a higher interest rate. The expected annual returns for CDs range from around 1.00% to 2.50%. The term of a CD can range from a few months to more than five years. The longer the term, the higher the rates.
You can invest your cash as CD able to receive monthly interest payments if you want to. But most of the investors prefer to wait until their CDs have matured. In the end, depositors have a lump sum (up to $250,000 per person) including the interests.
CD terms ranging from 6 months to 5 years or longer, and most CDs will charge a penalty if you withdraw your funds before maturity. So you should keep your money in a CD until it matures and gives you the most out of the investment.
3. Online Checking Accounts
An online checking account can also be a good option for short-term investment needs. The best part of an online checking account is an unlimited number of withdrawals, which makes it easier to liquidate your investment.
Checking account has one big negative aspect. You do take a hit on the interest rate which is lower than a savings account.
Then why should you invest in checking accounts? You’ll get these benefits:
- a) A guaranteed return – Your principal amount will be intact as long as you keep your total deposit at the bank below FDIC coverage of $250,000.
- b) A small but risk-free return – The return on investment will be small. But it is a risk-free return.
- c) Easier liquidation of funds – You will get unlimited chances to withdraw funds via transfer, debit card, or ATM.
- d) A hassle-free investment – Opening an online checking account is quite a simple process. It takes little time and effort to open such an account online.
4. Treasury Securities
As a beginner, you must know that treasury securities are bonds offered by the U.S. Treasury. This investment option is backed by the government’s credit and the range of this investment is quite extensive.
You have a variety of treasuries to invest in, such as :
- Treasury notes
- Treasury bills
- Floating rate notes (FRNs)
- Treasury inflation-protected securities (TIPS), etc.
TIPS (0.5% and 2.5% return in retained for 5 years) are the marketable securities indexed to inflation, the underlying value is based on the consumer price index (CPI). So, the underlying value increases when inflation happens. Once the TIPS matures, you will receive either the adjusted amount or the original investment value, whichever is bigger. That means deflation doesn’t have any negative effect on your TIPS.
You have the option to invest in TIPS directly through TreasuryDirect.gov. Many investors may also invest in TIPS exchange-traded funds (ETFs) or mutual funds so that they can avoid the interest being taxed.
5. Municipal Bonds
Investing in Municipal Bonds may uncover big ROI opportunities for you. Preferably, a Municipal bond is issued by a local, state, or government agencies (not by the federal government) and used for public projects like building highways, parks, or new schools.
Municipal Bonds are short-term high-yield (upward of 4%) investments, backed by the government agencies, and interest is usually exempt from taxes. Municipal bonds can be divided into two segments, Revenue or General Obligation (GO). Revenue bonds are backed by a special revenue source, like hotel tax or toll road fees. On the other hand, General Obligation bonds are not backed by any specific project.
6. Pay off High-interest Debts
Pay off your high-interest debt will be a smart short-term investment. Sounds confusing? Let me Put some light on it.
If you have a high-interest debt like credit card debt with a balance of $20,000 @ 18% APR, by paying off the debt you are actually getting a great return on that amount.
By enrolling into a debt consolidation program, you may easily consolidate your high-interest debts and reduce the total interest rate. By doing so, you actually save a lot of money as interest which also can be considered as the return on your investment.
By choosing a debt consolidation option such as balance transfer method, you can transfer your high-interest balance to a 0% APR balance transfer card to speed up the debt consolidation process.
There are lots and lots of short-term investment option by which you may save a lot and gain a lot. Just because you have a small time frame in your hands to invest, it doesn’t mean you can’t yield a decent ROI. Be patient and do your research, good luck.
Devour your prey raptors!