Investments are an excellent and realistic way to build wealth. They can be long-term or short-term, depending on what an individual is trying to achieve. While most people prefer to keep their money for the long-term to maximize returns, avoid market fluctuations, and spend less time, they also have an option to add short-term investments to their portfolios for liquidity purposes.
Money markets accounts are some of the most common short-term investments options. They are the type of savings account that allows investors to deposit and withdraw funds regularly. Money market accounts are similar to other types of savings accounts also, in that they limit withdrawals to typically six times per month. The core feature of this kind of account that attracts many people is the much higher interest involved, unlike the regular savings account. However, they usually require a higher minimum investment from customers. It is essential to look for accounts insured by the Federal Deposit Insurance Corporation (FDIC) to prevent loss.
Another ideal short-term investment option are high-yield savings accounts. This type of account is a way to store cash while receiving interest on deposits. Potential investors in this type of account must look for the banks or credit unions that offer the best interest rate since it’s all about making profits.
High-yield accounts are generally safe as they are insured by the FDIC for banks, while National Credit Union Administration (NCUA) insures accounts for credit unions. Similar to money market accounts, high-yield accounts also have a maximum of six withdrawals or transfers per cycle, although some financial institutions have different features.
Certificates of deposits can also serve as profitable short-term investments. Unlike most savings accounts, banks usually have strict restrictions on the number of early withdrawals customers can make. In a CDs account, an individual deposits money and agrees not to withdraw until it reaches its maturity period stipulated in the contract.
Upon maturity, the bank releases the money and interest agreed on available for withdrawal. Typically, CDs are non-withdraw-able until they mature. However, emergencies may come up for investors that would require them to withdraw before the due date. Many banks don’t make provisions for these emergencies, but some financial institutions do; however, it often comes with significant penalties. So, potential investors should ensure they have enough money to cater to emergencies after depositing into CDs. CD accounts are safe like money market accounts and high yield accounts as they are usually FDIC insured.
Treasuries are another kind of short-term investment. They are short-term financial instruments sold by the United States Department of the Treasury with maturity dates typically between a few days and one year. Treasuries come in three varieties, treasury bills (T-bills), treasury bonds (T-bonds), and treasury notes (T-notes). Interests are determined by how long it takes the bond to mature. Lengthy maturity periods attract higher interest than short periods.
The government sells treasuries at discounts from their original value. Individuals can buy treasuries directly from the Treasury Department or through brokers. Buying treasuries is safer than most investments since the government issues them.
