Best Low Risk Short Term Investment Strategies

 

If you're looking for a short term savings solution, there's no shortage of banking products available to meet your needs. Money market accounts, savings accounts and CDs (certificates of deposit) are all common and popular short term investment vehicles. Other products, such as municipal bonds, treasury bills and I-bonds may be available, but when you're looking for low-risk savings strategies that still allow you to get a return on your investment, it's hard to beat CDs.

Getting the Best Rates

Many banks claim to offer competitive rates, but some go beyond the industry standard. The online bank, Aurora Bank (Equal Housing Lender, Member FDIC) offers some of the highest CD rates available. Of course, to get the best rates, you'll either need to deposit a large amount, or keep the CD for a longer length of time (called the maturity date). Either (or both) of these options can help you get the best possible CD rates. Maturity date lengths and deposit amounts can vary. CD timeframes range from 6 months to 5 years, and deposit amounts vary, but it's best to keep a minimum balance of $1,000 in order to avoid any extra fees or account maintenance charges.

Making Money on Your Money

One of the best reasons to consider CDs for short term investments (anything five years or less is considered short-term), is simply because you get the benefits of compound interest. Every day, the bank pays you interest on the money you've deposited in the CD, and at the end of the month, this interest is added to your account on top of what you've already deposited. So you're essentially making money on the interest that the bank is already paying you.

Safety and Security

Another reason why CDs make ideal short term investments is because of their safety, security and stability. Unlike some other banking products (particularly investment-related products like stocks and bonds), CDs are covered by the FDIC – a government institution which protects your deposits up to $250,000 per account, against the highly unlikely event that the bank itself goes bankrupt. It's worth noting that since the FDIC was created after the Great Depression (credit unions have their own federal institution called the NCUA), not a single person has lost money in their account due to bank insolvency.

In uncertain economic times, it pays to have money invested across a wide spectrum of banking products. As you may already know, different products produce different results according to your risk tolerance level, amount to be deposited and how long the money is kept with that particular product. With this in mind, it's a good idea to speak with a banking professional about how to use CDs to reach your short term savings and investment goals. Considering today's competitive rates, CDs are a low-risk way to keep your savings secure for up to five years.