Short-Term InvestmentsShort-Term Investments are good for people who will need the money within a two year period. This type of investment is not a good idea for long term wealth unless you need the cash in the near future. They are good vehicles for saving to buy a house, a car or any other item that you wish to purchase within a set period of time. The risk is low and the interest paid is usually below 5%.
Savings AccountSaving Accounts accounts pay very little interest if any. You will see interest rates of 1%-3% in most cases if you're lucky. However, it's a safe place to put your money instead of a mattress. One can open an account in any bank as most people do for their day-to-day money management routine. I suggest keeping a few dollars at home in a secure place in case of an emergency. You may or may not recall, but IndyMac Bank located in California in 2008 closed it doors since they went out of business. No one was able to withdraw money so they had a run on the banks, which means everyone ran out to get their money out, but could not. This is a perfect example of why you should have money saved at home securely. Do not use this money unless its for an emergency. If you use it then replace it immediately.
Certificate of Deposit (CD)CD's (Certificate of Deposit) are also purchased at banks and other financial institutions. Banks offer different interest rates for these investments. CD's are invested using short term bonds. Not a bad idea for some folks. However, you will need to park your money for a set period of time. CD's come in 3 months, 6 months and 1 year or two years options. CD's are good since the bank will pay you the interest in short-term intervals. Upon maturity, you get the initial investment back. It is one of the better short-term investments available since it's easy to setup. Visit your local bank for more details and see who offers a better rate sometimes advertised in your local newspaper. Money Market AccountMoney Market accounts are my favorite. They too are short-term bonds invested similar to mutual funds, but not quite. Money market funds are where I keep the majority of my money for immediate emergencies whether personal or household. You can open a Money Market account anywhere especially online. Several online brokerages offer money market accounts, banks and big companies like Vanguard. As always you need a checking account, but if you want to save money and keep it liquid (you can easily withdraw the money) then a Money Market account is the way to go. In some cases CD's will pay a slightly higher interest rate, but they are not as liquid since you are locked it until the cd matures. It is always a good idea to keep money handy in case of an emergency. Financial planners will recommend at least 4-6 months of your living expenses at your disposal in this type of short-term investments.
Emergency FundsThings happen all the time so it's better to be prepared. If you don’t have an emergency fund equal to three to six months worth of basic living expenses, you might be in danger. Start building an emergency fund today because you never know what life will throw at you especially during these tough economic times. Your success in building your emergency fund depends on your ability to stash money away on a regular basis and not tap into it. Short-term investments are your best bet. An emergency fund is an investment in your security. It’s absolutely necessary because it gives you money to fall back on in case you or your spouse loses their job or become ill. You can easily amass large bills wheter it be medical, home or call repairs. Normally this will all hit you at the same time. Without an emergency fund you risk using your credit cards incurring large debt that may take you years to payoff. You never want to be in a position to pay for basic living expenses such as rent, mortgage, food and gas with your credit cards. The interest is outrageous. The minimum one should set aside is three months or more if you’re single and six months if you’re married with dependents. You don’t know how difficult it’s going to be to find a new job especially during a recession. Although you may collect un-employment insurance it will not cover your monthly expenses so get started now with an emergency fund. Any short-term investment will do, but the key is to start slowly building an emergency fund. You do not need to have it right away, but build one slowly. Keep your emergency fund separate from a savings account that you use for clothes, vacations, dinners and every day living expenses since its easier for you not to touch. These short-term investment strategies are good places to put your money.
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