With the constantly changing markets trends, most investors would be looking for safer ways of trading. One of such secure ways includes Short-term Investment. This is very suitable especially when you will need your money back in the near future but with a profit that might be higher than the normal banking rates.
Typically, short-term investment matures within a span of months to a few years after which you can choose to convert it into cash or other forms of short-term ventures. With this type of investment, you can actually liquidate your capital whenever you are in need of it.
For your short-term investment, there are numerous options available for you. Below are the best ones I recommend to you.
1. Peer-to-Peer Lending: Lending Club
Peer-to-Peer online platforms connect investors who act as banks to consumers who need loans. The types of borrowers’ loans provided on this network are however limited. As an investor, you buy notes and receive monthly income which comes from the repayment of the loan and also accumulated loan interest.
One company that is the gold standard for this type of short-term investment is Lending Club. Using particular credit criteria, Lending Club sets the interest rates on various notes and only allows borrowers with credible borrowing profiles. This significantly reduces the risk of borrower default thus securing lenders’ money.
How does it work?
Of note is that notes are not available to the residents of some states such as North Carolina and New Mexico. Again the different states have different requirements for one to invest in Lending Club. For example, in most states, you must have a minimum of $70,000 as your annual income in order to invest with the company. This can be even higher in some states. With a minimum net worth of $250,000, the income requirements do not apply to you irrespective of the state
Lending Club only allows you to invest a maximum of 10 percent of your net worth in the various notes. For you to open an account with Lending Club, the minimum deposit is $1000 while for retirement account it is $5500. Investment in any given note requires a minimum of $25 and can be as high as $20,000. You can invest either manually where you browse to mark the notes where you will venture into or use automated investing. The average interest rate is 3-8% and maturity span is 3-5 years.
- Lending Club has interest rates of less than 1% on fixed income investments, therefore, offers a great opportunity for you to obtain higher returns reaching even 8.74%.
- Note Trading Platform offered by Lending Club allows you to sell the remaining part of a note you had previously bought to another investor. This, therefore, allows you to get back your money before maturity whenever you are in need.
- Investments done via Lending Club are not insured hence when an individual loan goes into default you lose that particular portion of your investment.
- Despite the stringent measures by the company to curb defaulters, some borrowers may still fail to repay in some months thus you won’t get the repayment of that loan in that given month.
- In cases where the loan repayment is 16 days past due and no litigation is required, you will be required to pay 18% as the loan collection fee. When litigation is involved, you will be required to pay 30% of the attorney’s hourly fees in addition to the attorney costs.
- In the rare extreme cases where the collection fails and it is evident that the borrower is not in a position to repay, the loan will be charged off 150 days past due and the residual principal balance deducted from your account balance. If by any means any recovery of funds is made on the defaulted loans, it will be channeled to the investor’s account on a pro-rata basis.
Strategies for reducing risks
Spreading your investment over as many loans as possible when you are capable is the best way to minimize risks of losses.
Another effective of ensuring the safety of your money is by setting specific loan requirements which can be a bit higher than the general Lending Club regulations
2. Online High-Interest Savings account
I have had complaints from many of my clients on the low-interest rates normal banks offer for savings account especially those who used it as an investment method. When looking for a short-term investment, I know you would definitely not go for such an option. Fortunately, we now have online savings account with high interest rates offered by various banks that will help you maximize returns even within a short period of time.
Example of these banks includes Ally Bank that have consistently high rates, CIT Bank Savings with the best ongoing interest rates, Compass Bank BBVA which has the best variety of products and many more. Every bank offering online high yield savings account has an FDIC insurance coverage of up to $250000 thus guaranteeing security to your money even if the bank fails.
- High-interest rates that might be even 5-10 times higher the national average interest rate and are risk-free.
- No monthly fees charged plus no/ low minimum balance requirements allowing you to withdraw your money without account closure.
- Banks like Capital 360 offers easy deposit options whereby you link a checking account from another institution just like with the traditional banks.
- With an online high-profit savings account, it is a guarantee never to lose your principal on the investment provided your total deposit at the online bank remain below $250,00
- High liquidity: mostly online banks allow up to 6 withdrawals per month from the savings account therefore are to get your funds without much struggle at any time of the month.
During inflation, the probability of losing your purchasing power with Online Savings account is high though the returns are still higher than that you could realize with the usual savings account.
The choice of the online bank you invest with will depend on your preferences whether you want the most competitive one-year interest rates, the most suitable account for the military or even
3. Money Markets Accounts
These accounts are hybrids of savings and checking account. They provide you with ATM cards, deposit slips, and checks. These accounts are not based on the length of time you invest your money but rather the account balance.
How do they work?
You open a money market account at a bank and make a deposit. The bank will pay you interest on the amount deposited but will later loan that money to other people at a slightly greater interest rate.
Money markets have more competitive rates compared to the normal savings accounts thus higher returns.
With this account, the number of bank transfers that you can make between it and the saving or checking accounts is not limited provided both/all of them are held at the same bank.
You are also free to move your money to another investment when the interest rates dip without any penalties.
Money market account can also be connected to a brokerage account allows you to purchase bonds, stocks, and even treasuries.
There is a risk of losing purchasing power when you are generating may a 2.7% interest in your account while inflation may be at 3.5%.
Again when the interest rate on your money market account is low, annual fee charges can eat up a significant amount of the profit leading to low net returns.
Higher minimum balance requirement to keep you from undergoing loss as an investor.
A restricted number of withdrawals within a particular period of time hence are less liquid than checking accounts.
Some money market mutual funds are not insured by the Federal Deposit Insurance Corporation thus there is no compensation in case the funds fail.
4. Take Advantage of Promotional Deals
One of the easiest ways of making money within a short period of time is utilizing the various promotional offers by reward credit cards. For example, Capital One Venture Credit Card offers a 50000- mile bonus that requires you to $3,000 and above in the first 3 months of opening an account. Upon achieving this, the 50,000 miles translates to $ 500 in travel. I recommend that you do not overstretch your budget in order to obtain these bonuses but if your normal expenses reach the limit, you would better use your new credit card for the purchases.
Bank account bonuses is another suitable promotional offer to act as a short-term investment. In most instances, banks give offers to new clients who open their accounts and deposit a given minimum amount with a specified period or sign up for a direct deposit. The bonuses are usually between $100- 400.
Currently, Chase Bank is offering a bonus of $350 to its new customers who will meet the various requirements. If you open a checking account and sign up for a direct deposit, you get a bonus of $200 while opening a savings account and making a deposit of $ 10,000 from an account other than existing Chase account, you get a reward of $ 150.
5. Short-Term Bond Funds and ETFs
Short-term bond funds are products that are usually managed by professional financial advisors only. They are market products, therefore, they pay out according to the market’s present status as per the fluctuations. It takes 2 or fewer years for the short-term bonds to mature.
In comparison to money markets, bonds are less stable. However, they offer a great potential to earn higher interests thus ideal choice for you as an investor especially when your timeline is 2 years and below but aim at the maximum returns.
For you to trade bond funds and Exchange Traded Funds (ETFs), you need a brokerage account such as TD Ameritrade or Betterment.
There are three main short-term investments within the bond category, and each is one you could consider.
6. Certificates of Deposit (CDs)
Another reliable option for short-term investment is the Certificate of deposit. CD is a high yield investment method that involves giving a loan to a bank. Banks like, Compass Bank, CIT and Discover Banks offer the highest interest rates on Certificate of Deposits.
CDs have a maturity period of 3 months to 5 years. After this time span, you will obtain access to your principal investment together with a fixed interest return of 0.5%. This interest increases when your willingness to part with your principal amount is deposited. You can henceforth withdraw the money from a Certificate of Deposit at your preferred time. Upon withdrawal, you will incur some withdrawal cost. The cost depends on the amount you will be withdrawing and the bank of the transaction.
Since they provide safe investment plans, CDs are a very reliable platform. Nonetheless, income from CDs are predictable and therefore, yield provided in a known way before an investor can decide whether or not to go with the plan. For this reason, investors can know the exact outcomes of what their investment can generate hence a mature decision can be made without “fears of the unknown”. Finally, investors who want to purchase large items like apartments or vehicles, CDs can be used as a security to obtain the item on loan. This is unlike most investment platforms.
Very high inflation risk lags CDs behind. The risks drop rapidly when rates are low since, over a period of time, the purchasing command of the amount in the Certificate of Deposit tends to lose its general value. Basically, the money in the CD is usually locked for a specified period of time. This, therefore, means that in case of emergencies that would require early and immediate cash, CDs would not be of aid.
7. Municipal Bonds
A municipal bond is usually issued by a government agency or a local state. It is used to complete public projects like building new schools or highways. These high-yield investments are short-term savings backed up by government entities issuing the bond. The interest that is earned is exempted from federal taxes. Generally, there are 3 types of municipal bonds: General Obligation, revenue
and assessment bonds.
The revenue bonds are usually backed up by a particular revenue source whereas the General Obligation bonds do not have a backup of a specific project. The assessment bonds obligate payment from property tax assessment within a particular municipality.
A good example is an Ally Bank whose investment scheme offers a reliable way of investing in municipal bonds. When you have chosen to invest in municipal bonds, scrutinize the equation at hand and find out your taxable equivalent yield from online calculators. This is beneficial since you will know the municipal tax bracket.
The advantages of bonds include:
Holding a bond to maturity guarantees you of 100% of your principal investment amount back together with the interest remitted to you.
Also, the chances of an investor defaulting a municipal bond are relatively low. This risk is usually associated with amounts of the interest rate. When the interest rates increase rapidly, the value of a bond decreases. On the other hand, a decrease in interest rates causes an increase in the value of a bond. Note that the long-term bonds are vulnerable to fluctuations in the rates of interest whereas short-term bonds have a lower risk to your invested amount.
Conversely, I would clearly let you know that as compared to any other Treasury investments, Municipal bonds are riskier. They always undergo “interest rate risk”. When the environment has a progressive low-interest rate, the value of the Municipal bonds decreases. Bond yields may not always beat the inflation rate. This means that money parked in a municipal bond fund may be worth lesser some buying power in the future as compared to now. The bonds also undergo the risk of loss of capital and defaults.
8. Pay Off High-Interest Debt
Basically, very few investment strategies will pay off and at the same time eliminate high-interest debt. As a matter of fact, most credit cards tend to charge very high-interest rates when you fail to pay your loan balance at the end of the agreed time frame.
Even though paying debts does not seem like a good investment, let us take a scoop of how this may not be true. Pay Off High-Interest debt is one of the best short-term investment methods. Look at the mathematics: You have a balance of $3,000 on your credit card with an APR of 20%. This means that you can save approximately $600 in a month’s interest by paying the balance. This is a 20% return on your principal investment. Isn’t it just awesome?
Discover it® card will offer you a 0% APR for the primary 14 months. This rate gives you more than a year to pay off the high-interest debt without accumulating any interests. Therefore, if you have been considering to part with a large amount of money at once, you can transfer your debt to an APR credit card with 0% and repaying it before the 1st interest period is closed down.
- This investment eliminates any unwanted risks in your financial status. This means that you will not be receiving haunting calls from debt collectors of creditors and the nightmare of being declared bankrupt is also eliminated.
- Uniquely, pay-off high-interest debt will NEVER reduce your credit ratings. Instead, this investment scheme allows you to get access to even greater benefits like low-interest rates, low insurance premiums and great job opportunities.
Even though this investment plan does not have an adverse effect on your credit score rating, you ought to pay your debts quicker so as to avoid tampering with your credit score.
9. Cash Back Rewards Offers
Have you been looking for the most epic ways of getting returns without any efforts from your side? If the answer is a YES, then I strongly recommend Cash Back Rewards Offers for you. It is an investment plan that will enable you to earn plenty of money in the short term.
Assuming you signed up for a card so as to obtain huge sign-up bonus points. Depending on the offer, you will be awarded some points that are worth a certain amount. For instance: you signed up with $4,000 for the Chase Sapphire Preferred Card and you are awarded with 50,000 bonus points that are worth $ 500 within a period of 90 days. Since an annual fee of $95 is usually waivered in the 1st year, you will earn a bonus without spending any penny from your pockets.
The main advantage of Cash Back reward offers is that you will be granted an additional value for the purchase you have made. Reward offers can actually be earned from a wide variety of products or services including; travel benefits, quality products, unique services or even movie and game tickets. This, in turn, means that consumers will spend less. Most of the rewards are usually availed at great pricing levels hence allowing consumers to benefit in saving as much cash as possible. Note that for the most reward offers I have encountered, the cost for membership is often free or very minimal.
On the flip side, Cash Back Reward Offers has some few disadvantages. These include: Most of these programs have some limitations in the rewards offered. In fact, the reward may be favorable to newbies or proficient customers only. Reward programs are sometimes run at the company’s discretion and if the management decides to scrap it away, customers might end up losing their earned points without being compensated.
The investment plans also encourage members to spend much more money. Since the reward offers to provide high bonuses in different items/services, the temptation of a consumer spending a lot of money is very prevalent hence causing extravagates.
Finally, not all the purchases made by a customer may generate rewards. The programs offer rewards on specific purchases. This may, therefore, be a limiting and unreliable scheme to a consumer.
In summary, then these are the best short-term investment options available in the market and I would recommend any to you. Your choice will, therefore, depend mainly on the amount you want to invest and the duration for the same. Each platform, however, has its own merits and demerits which must also be considered carefully.
Even though short-term investment is safer, it won’t give you a high-profit margin as a long-term investment would. In order to obtain the best returns, you should carefully decide the type of short-term investment you would put your money in. Generally, avoid riskier kinds like stocks that may lose value in a short period of time leading to losses.
Short-term investment is the best if you do not want to risk incurring losses that may result due to market fluctuations.