People email me and ask all the time where they should invest their short-term cash. Because of the stock market’s shaky returns lately or even those who are saving for a goal like a down payment on a home, more people are holding cash in their investment portfolios than ever before.
That is the case for young investors too. Young investors are holding more cash than ever before in their investment portfolios instead of putting that money to work in the stock market.
So, where should you stash cash in the short term? There are several short term cash investments that you may want to consider.
High Yield Online Savings Accounts
There are many options for investors to find higher interest rates on their savings accounts online. Online banks, many of them who are strictly only available online like ING Direct, offer customers higher rates of return because their overhead costs are much lower.
Other great online banks that offer a very competitive rate of return are ING Direct’s Orange Savings Account, Ally Bank, Everbank, and PerkStreet Financial.The savings are passed on to online banks’ customers because these banks do not have the expense of having a physical store front.
Short-Term Certificates of Deposit
Short-term certificates of deposit have been providing customers with a better a interest rate for their short term cash investments than traditional savings accounts for several years now. As always, you have several different years or months to choose from when you invest in certificates of deposit.
You can choose investment lengths as short as three, six, nine, or twelve months. You can also choose CDs up to ten or more years until maturity as well. One thing that you should consider looking for when investing in a CD as short term cash investments is the ability to cheaply break the CD contract and withdrawal your investment before the maturity date.
Many certificates of deposit allow you to do this and only forfeit a few months worth of interest as a principle. This feature makes these types of certificates of deposit one of the best short term cash investments that you can choose from.
Money Market Funds
Money market funds and money market accounts are very similar to their savings account little brothers. But, these funds offer an increase in the rate of return when compared to traditional savings accounts with no additional risks taken by you.
These investments are not pegged at a share price value of $1 per share and are backed by the federal government’s Federal Deposit Insurance Corporation (FDIC) insurance for all of the best, largest, and most popular banks. There is no reason to invest with a bank, either online or brick and mortar, that is not covered by FDIC insurance.
Credit unions have a similar protection to their depositors that is provided by the National Credit Union Administration (NCUA). Federal credit unions are chartered, supervised, and insured by the National Credit Union Administration (NCUA), an agency of the federal government much like the FDIC does for banks.
There are many options for your short term cash investments instead letting your money sit in a brick and mortar bank’s savings account earning a quarter percent rate of return if you are lucky to earn that. Money market funds, high yielding online savings accounts like those offered by ING Direct and other online banks, and even certificates of deposits offer better rates of return.
These investments from reputable online banks are backed by FDIC insurance just like your savings account at your local bank branch, and you have easy access to your money as well. There is no reason to earn a rate of return near zero percent when you can increase your rate of return through other short term cash investments.