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8 BEST SHORT-TERM INVESTMENTS IN JUNE 2022

Photo by Adobe Stock/Illustration By Bankrate


ADVERTISER DISCLOSURE

We are an independent, advertising-supported comparison service. Our goal is to
help you make smarter financial decisions by providing you with interactive
tools and financial calculators, publishing original and objective content, by
enabling you to conduct research and compare information for free - so that you
can make financial decisions with confidence.

Our articles, interactive tools, and hypothetical examples contain information
to help you conduct research but are not intended to serve as investment advice,
and we cannot guarantee that this information is applicable or accurate to your
personal circumstances. Any estimates based on past performance do not a
guarantee future performance, and prior to making any investment you should
discuss your specific investment needs or seek advice from a qualified
professional.


HOW WE MAKE MONEY.

The offers that appear on this site are from companies that compensate us. This
compensation may impact how and where products appear on this site, including,
for example, the order in which they may appear within the listing categories.
But this compensation does not influence the information we publish, or the
reviews that you see on this site. We do not include the universe of companies
or financial offers that may be available to you.


EDITORIAL DISCLOSURE.

All reviews are prepared by our staff. Opinions expressed are solely those of
the reviewer and have not been reviewed or approved by any advertiser. The
information, including any rates, terms and fees associated with financial
products, presented in the review is accurate as of the date of publication.

Photo by Adobe Stock/Illustration By Bankrate

Written by
James Royal
Written by
James Royal
Senior investing and wealth management reporter

Bankrate senior reporter James F. Royal, Ph.D., covers investing and wealth
management. His work has been cited by CNBC, the Washington Post, The New York
Times and more.

James Royal
 * June 15, 2022 /
 * 9 min read

Edited by
Brian Beers
Edited by
Brian Beers
Senior wealth editor

Brian Beers is the senior wealth editor at Bankrate. He oversees editorial
coverage of banking, investing, the economy and all things money.

Brian Beers
Reviewed by
Robert R. Johnson
Reviewed by
Robert R. Johnson
Professor of finance, Creighton University

Robert R. Johnson, Ph.D., CFA, CAIA, is a professor of finance at Creighton
University and chairman and CEO of Economic Index Associates, LLC.

Robert R. Johnson
 * June 15, 2022 /
 * 9 min read

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Close page navigation
 * What is a short-term investment?
 * Short-term investments: Safe but lower yield
 * Overview: Top short-term investments in June 2022
 * Best investments for short-term money
 * What makes a good short-term investment?
 * Tips for investing money for five years or less

PREV NEXT

If you’re looking to invest money for the short term, you’re probably searching
for a safe place to stash cash before you need to access it in the
not-so-distant future. The volatile markets and slumping economy led many
investors to hold cash as the coronavirus crisis dragged on — and things remain
uncertain as the economy now faces surging inflation.

Short-term investments minimize risk, but at the cost of potentially higher
returns available in the best long-term investments. As a result, you’ll ensure
that you have cash when you need it, instead of squandering the money on a
potentially risky investment. So the most important thing investors should be
looking for in a short-term investment is safety.


WHAT IS A SHORT-TERM INVESTMENT?

If you’re making a short-term investment, you’re often doing so because you need
to have the money at a certain time. If you’re saving for a down payment on a
house or a wedding, for example, the money must be at the ready. Short-term
investments are those you make for less than three years.



If you have a longer time horizon – at least three to five years (and even
longer is better) – you can look at investments such as stocks. Stocks offer the
potential for much higher returns. The stock market has historically risen an
average of 10 percent annually over long periods – but it has proven to be quite
volatile. So the longer time horizon gives you the ability to ride out the ups
and downs of the stock market.


SHORT-TERM INVESTMENTS: SAFE BUT LOWER YIELD

The safety of short-term investments comes at a cost. You likely won’t be able
to earn as much in a short-term investment as you would in a long-term
investment. If you invest for the short term, you’ll be limited to certain types
of investments and shouldn’t buy riskier assets such as stocks and stock funds.
(But if you can invest for the long term, here’s how to buy stocks.)

Short-term investments do have a couple of advantages, however. They’re often
highly liquid, so you can get your money whenever you need it. Also, they tend
to be lower risk than long-term investments, so you may have limited downside or
even none at all.


OVERVIEW: TOP SHORT-TERM INVESTMENTS IN JUNE 2022

Here are a few of the best short-term investments to consider that still offer
you some return.


1. HIGH-YIELD SAVINGS ACCOUNTS

A high-yield savings account at a bank or credit union is a good alternative to
holding cash in a checking account, which typically pays very little interest on
your deposit. The bank will pay interest in a savings account on a regular
basis.

Savers would do well to comparison-shop high-yield savings accounts, because
it’s easy to find which banks offer the highest interest rates and they are easy
to set up.

Risk: Savings accounts are insured by the Federal Deposit Insurance Corporation
(FDIC) at banks and by the National Credit Union Administration (NCUA) at credit
unions, so you won’t lose money. There’s not really a risk to these accounts in
the short term, though investors who hold their money over longer periods may
have trouble keeping up with inflation.



Liquidity: Savings accounts are highly liquid, and you can add money to the
account. Savings accounts typically only allow for up to six fee-free
withdrawals or transfers per statement cycle, however. (The Federal Reserve now
allows banks to waive this requirement.) Of course, you’ll want to watch out for
banks that charge fees for maintaining the account or accessing ATMs, so you can
minimize those.


2. SHORT-TERM CORPORATE BOND FUNDS

Corporate bonds are bonds issued by major corporations to fund their
investments. They are typically considered safe and pay interest at regular
intervals, perhaps quarterly or twice a year.

Bond funds are collections of these corporate bonds from many different
companies, usually across many industries and company sizes. This
diversification means that a poorly-performing bond won’t hurt the overall
return very much. The bond fund will pay interest on a regular basis, typically
monthly.

Risk: A short-term corporate bond fund is not insured by the government, so it
can lose money. However, bonds tend to be quite safe, especially if you’re
buying a broadly diversified collection of them. In addition, a short-term fund
provides the least amount of risk exposure to changing interest rates, so rising
or falling rates won’t affect the price of the fund too much.

Liquidity: A short-term corporate bond fund is highly liquid, and it can be
bought and sold on any day that the financial markets are open.


3. MONEY MARKET ACCOUNTS

Money market accounts are another kind of bank deposit, and they usually pay a
higher interest rate than regular savings accounts, though they typically
require a higher minimum investment, too.

Risk: Be sure to find a money market account that is FDIC-insured so that your
account will be protected from losing money, with coverage up to $250,000 per
depositor, per bank.

Like a savings account, the major risk for money market accounts occurs over
time, because their low interest rates usually make it difficult for investors
to keep up with inflation. In the short term, however, that’s not a significant
concern.

Liquidity: Money market accounts are highly liquid, though federal laws do
impose some restrictions on withdrawals.


4. CASH MANAGEMENT ACCOUNTS

A cash management account allows you to put money in a variety of short-term
investments, and it acts much like an omnibus account. You can often invest,
write checks off the account, transfer money and do other typical bank-like
activities. Cash management accounts are typically offered by robo-advisors and
online stock brokers.

So the cash management account gives you a lot of flexibility.

Risk: Cash management accounts are often invested in safe low-yield money market
funds, so there’s not a lot of risk. In the case of some robo-advisor accounts,
these institutions deposit your money into FDIC-protected partner banks, so you
might want to make sure that you don’t exceed FDIC deposit coverage if you
already do business with one of the partner banks.

Liquidity: Cash management accounts are extremely liquid, and money can be
withdrawn at any time. In this respect, they may be even better than traditional
savings and money market accounts, which limit monthly withdrawals.


5. SHORT-TERM U.S. GOVERNMENT BOND FUNDS

Government bonds are like corporate bonds except that they’re issued by the U.S.
federal government and its agencies. Government bond funds purchase investments
such as T-bills, T-bonds, T-notes and mortgage-backed securities from federal
agencies such as the Government National Mortgage Association (Ginnie Mae).
These bonds are considered low-risk.

Risk: While bonds issued by the federal government and its agencies are not
backed by the FDIC, the bonds are the government’s promises to repay money.
Because they’re backed by the full faith and credit of the United States, these
bonds are considered very safe.

In addition, a fund of short-term bonds means an investor takes on a low amount
of interest rate risk. So rising or falling rates won’t affect the price of the
fund’s bonds very much.

Liquidity: Government bonds are among the most widely traded assets on the
exchanges, so government bond funds are highly liquid. They can be bought and
sold on any day that the stock market is open.


6. NO-PENALTY CERTIFICATES OF DEPOSIT

A no-penalty certificate of deposit, or CD, lets you dodge the typical fee that
a bank charges if you cancel your CD before it matures. You can find CDs at your
bank, and they’ll generally offer a higher return than you could find in other
bank products such as savings accounts and money market accounts.

CDs are time deposits, meaning when you open one, you’re agreeing to hold the
money in the account for a specified period of time, ranging from periods of
weeks up to many years, depending on the maturity you want. In exchange for the
security of having this money in its vault, the bank will pay you a higher
interest rate.

The bank pays interest on the CD regularly, and at the end of the CD’s term, the
bank will return your principal plus the earned interest.

A no-penalty CD may also be attractive in a period of rising interest rates,
since you can withdraw your money without paying a fee and then deposit it
elsewhere for a higher return.

Risk: CDs are insured by the FDIC, so you won’t lose any money on them. The
risks are limited for a short-term CD, but one risk is that you may miss out on
a better rate elsewhere while your money is tied up in the CD. If the interest
rate is too low, you may also end up losing purchasing power to inflation.

Liquidity: CDs are typically less liquid than other bank investments on this
list, but a no-penalty CD allows you to avoid the charge for ending the CD
early. So you can dodge the key element that makes most CDs illiquid.


7. TREASURYS

Treasurys come in three varieties – T-bills, T-bonds and T-notes – and they
offer the ultimate in safe yield, backed by the AAA credit rating of the U.S.
federal government. So rather than buying a government bond fund, you might opt
to buy specific securities, depending on your needs.

Risk: As with a bond fund, individual bonds are not backed by the FDIC, but are
backed by the government’s promise to repay the money, so they’re considered
very safe.

Liquidity: U.S. government bonds are the most liquid bonds on the exchanges, and
can be bought and sold on any day the market is open.


8. MONEY MARKET MUTUAL FUNDS

Don’t confuse a money market mutual fund with a money market account. While
they’re named similarly, they have different risks, though both are good
short-term investments. A money market mutual fund invests in short-term
securities, including Treasurys, municipal and corporate debt, as well as bank
debt securities. And since it’s a mutual fund, you’ll pay an expense ratio to
the fund company from the assets being managed.

Risk: While its investments are generally safe, money market funds are not as
safe as money market accounts, which are FDIC-backed. In contrast, money market
funds can lose money, typically only in periods of severe market distress, but
they are generally quite safe. Still, they are some of the most conservative
investments available and should protect your money.

Liquidity: Money market mutual funds are reasonably liquid, and you can access
your money readily. They may allow you to write checks off the fund, though
you’re typically limited to six withdrawals per month.


BEST INVESTMENTS FOR SHORT-TERM MONEY

When you need the money Investment options Potential interest rate Risk A year
or less High-yield savings and money market accounts, cash management accounts
Around 1.2 percent Low risk and accounts are backed by the FDIC. Two to three
years Treasurys and bond funds, CDs 2.5+ percent Bank products and Treasurys are
safest, corporate bond funds slightly less so. Three to five years (or more)
CDs, bonds and bond funds, and even stocks for longer periods 3.0+ percent (or
much more if you’re investing in stocks) CDs and bonds are relatively low risk
compared to stocks, which can fluctuate a lot and are high risk.


WHAT MAKES A GOOD SHORT-TERM INVESTMENT?

Good short-term investments may have many things in common, but they are
typically characterized by the following three traits:

 * Stability: Good short-term investments don’t fluctuate too much in value, as
   many stocks and bonds do. The money will be there when you need it, and is
   often protected by FDIC insurance or a government guarantee.
 * Liquidity: A good short-term investment usually offers high liquidity,
   meaning that you can access the cash invested in it quickly. In the case of
   certain CDs, you’ll know when the money becomes available, and you can always
   redeem the CD, though it will often come with a penalty, unless you opt for a
   no-penalty CD.
 * Low transaction costs: A good short-term investment doesn’t cost a lot of
   money to get into or out of, unlike a house, for example. That’s especially
   important when yields on short-term investments are at historical lows.

These features mean that your money will not be at risk and will be accessible
when you need to use it, which is one of the major reasons to have a short-term
investment. In contrast, you can earn a higher return on long-term investments
but must endure more short-term volatility. If you need that money, though, you
might have to sell at a loss to access it fully.


TIPS FOR INVESTING MONEY FOR FIVE YEARS OR LESS

If you’re investing money for five years or less, you should have a different
process than if you were investing with a time horizon of decades. Instead, you
need to approach short-term investing with the following tips:

 * Set your expectations. Short-term investments will have lower potential
   returns than long-term investments, so it’s important to set your
   expectations appropriately.
 * Focus on safety. In general, if you’re investing for the short term, you
   should focus on safety rather than return. Your money should be there when
   you need it.
 * A little extra return may not be worth the extra risk. With short-term
   investments earning so little, it can be easy to try to get a little extra
   return at the expense of a lot more risk. But focus on why you’re investing
   for the short term.
 * Pick the investment based on your needs. You might be able to earn a little
   extra on that CD, but what if you need to access the money before it matures?
   Calibrate your investment type to your needs.
 * Not all short-term investments are equal. Bank products are backed by the
   FDIC, so you won’t lose any principal. But market-based products, even safe
   ones like short-term bond funds, could decline over short periods. Understand
   the risks of your investments.

Short-term investments are usually pretty safe, especially relative to
longer-term investments such as stocks or stock funds. But be sure you
understand what you’re investing in.

Editorial Disclaimer: All investors are advised to conduct their own independent
research into investment strategies before making an investment decision. In
addition, investors are advised that past investment product performance is no
guarantee of future price appreciation.




ON THIS PAGE

 * What is a short-term investment?
 * Short-term investments: Safe but lower yield
 * Overview: Top short-term investments in June 2022
 * Best investments for short-term money
 * What makes a good short-term investment?
 * Tips for investing money for five years or less

Written by
James Royal
Senior investing and wealth management reporter
Read more From James
Bankrate senior reporter James F. Royal, Ph.D., covers investing and wealth
management. His work has been cited by CNBC, the Washington Post, The New York
Times and more.
Edited by
Brian Beers
Senior wealth editor


Reviewed by
Robert R. Johnson
Professor of finance, Creighton University

About our review board



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