If you are like most people, you have both short-term and long-term goals for your money. Your long-term goals might include a comfortable retirement and the education of your children, while your short-term goals could include saving for a new car or the down payment on a home. Investing your money properly in the short term means choosing investments that will keep your money safe and avoid putting the principal at risk.
Determine the time frame for your short-term investment. Knowing how long you can keep your money invested will help you choose the right type of investment. The key to any short-term investment is to keep the money safe and avoid losses, but you can get a better return if you are willing to keep the money tied up for a year or two. For instance, a money market fund gives you immediate access to your money, but the interest rate is likely to be quite low. A certificate of deposit (CD), on the other hand, generally provides a higher rate of interest, but you cannot retrieve your money until the CD matures.
Contact your bank and ask the teller for a rate sheet. The rate sheet lists all of the deposit accounts the bank offers, along with the current rate of interest for each one. Banks offer a number of short-term investment vehicles, including money market accounts, savings accounts and certificates of deposit.
Review your options, including money market funds, savings accounts and certificates of deposit. You will probably find that the certificates of deposit have a higher interest rate, but the downside is that you will have to keep your money invested for the term of the CD. If you have a fixed goal in mind, such as buying a house five years from now, a five-year CD will boost your savings with absolute safety. But if you are building an emergency fund, a CD might not be suitable, since you never know when you will need the money.
Shop around at other banks and credit unions in your area, and at Internet banks if you are comfortable keeping your money online. Choose the short-term investment that works best for your needs. Since you are dealing with short-term goals, your primary goal should be the safety of your principal. Earning a good interest rate is important, but it is secondary to the security of your money.
Choose the CD or money market fund that best meets your needs. If you need a money market account, you might be able to get a higher rate by choosing a money market mutual fund over a money market account from your bank. One potential downside, however, is that these mutual funds often come with restrictions on the number of checks you can write each month. That should not be an issue if the goal is to build an emergency fund, but it could be a problem if you plan to use your account to pay bills.
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