Advantages of a Short Term Investment

These days, it doesn't pay to have very much money tied up in long-term investments. If you've recently refinanced your home in order to get some equity cash out, you probably have plans for that money. But if you've got some left over, you might want to think about some short-term investments that could bring you a better return than just sticking it in your savings account.

High Yield Bank Accounts

Some of these accounts have rates as good as certificates of deposit, but with fewer restrictions. They are also federally insured. On the downside, you may have to transfer the money into a regular checking or savings account to get access to it, and this could take a few days.

Certificates of Deposit (CD)

The downside to these is a penalty for taking your money out early. But if you are reasonably sure you won't need to touch it for at least three months, you can get a three-month CD and make some money that way.

Money Market Accounts

Insured by the FDIC, your money is safe. And you can still use it. But you must be sure your account does not drop below the minimum required balance, and you are limited to a certain number of transactions per month. If you mess up on either of these points, you'll pay a penalty.

Government-Backed Bills or Notes

Treasury bills or notes are backed by the U.S. government. Notes take between two and ten years to mature, while bills are ready in less than a year. These investments are considered the safest in the world, and you don't have to pay any state or local taxes on them.

Why Invest Short-Term?

You can put a little money aside for your Christmas shopping, having it earn interest in a three-month CD, until you need it. That way, you won't be tempted to spend it on something else and then charge all your presents and end up in debt again.

Maybe you're thinking about starting your own business. You can set this money aside in a short-term investment while you consider the possibilities.

The perfect vacation has been a dream you thought you'd never realize. Maybe you've saved up enough for the airfare and hotel accommodations, but you don't have enough spending money for meals and activities. Set what you've got aside in a short-term investment and revisit the issue in a year. By then, you may have all the money you need, and your dream can become a reality.