Making money quickly, legally, and virtually without risk is indeed possible in the wonderful world of the American financial system. It can be complicated, though, so we’ve put together this simplified list of short term investments.
Defining “Short Term Investments”
We’ll define short term investments as ones that will pay off after a year or less. Investing for longer periods of time results in a higher return on the investment, and most of the options discussed below have 3-year or 5-year terms available if you’re okay with investing for that long.
5 Low-Risk Short Term Investments
CD stands for “certificate of deposit,” It’s one of the most straightforward high-yield investments you can make.
First, choose how much money you want to invest and how long you are willing to be without that cash. The longer the time you choose, the more money you’ll receive after that time has passed.
Second, work out the details with your bank and send off the money.
Third, wait for the agreed-upon amount of time. During that time, you will not be able to touch the cash without incurring a steep penalty.
After the time has passed, your money “matures,” which means you can take it out again along with the added money you get back from the CD!
If the CD you take out is insured by the FDIC (as most CDs are), it will incur absolutely no risk on your part. That is because the FDIC insures investments up to $250,000.
You can expect roughly a 1% return on your investment if you get a one-year CD, or 1.5% if you get a three-year one.
P2P loans are a new investment type made possible by the magic of the internet.
Basically, a person can register on a P2P loan site and apply for a specific loan. If they pass a background check, the site will post their loan request and let qualifying investors from around the world chip in to pay the loan. A single investor might pay an entire loan, or many investors might pay smaller parts of an individual loan.
The person receiving the loan is charged interest, just like they would be with a bank. Most of that interest is paid directly to the investors. The interest rate is generally 7-9% for one-year loans and considerably more (around 15%) for three-year.
There is a small amount of risk with this option. So if you choose to go the P2P lending route, we’d recommend sinking smaller investments into a wide variety of loans instead of investing a lot in one place.
Series I Bonds
Series I Bonds are investments you make in the US treasury. The term on series I bonds is six months, and the interest rate for bonds bought at the time of this writing is 1.06%. The rate changes every six months, though, and was 1.56% just a year ago. To check the current rate, check out this table.
The rate is not too high, but the big advantage of series I bonds is that they are inflation-proof. That means your principal investment will grow or shrink according to the national inflation rate, so your money won’t lose value if the economy happens to crash while it’s invested.
High Yield Online Savings
Traditional banks issue interest to the money customers keep in savings accounts, but the rates are so low — usually about 0.01% — that they may as well not be paying anything. Online banks, on the other hand, offer much more attractive rates.
So instead of letting your savings sit in your local bank branch, put them in an online bank. You can still withdraw them whenever you want, but you’ll be making a sizable sum each year as well.
The rates offered by different banks are continually fluctuating. At the time of this writing, the best annual rates are provided by CFG Bank, Vio Bank, and Fitness Bank — 1.25, 1.21, and 1.2%, respectively. You can see what banks offer the best rates at the time of your reading right here.
Credit Card Rewards
Lots of credit cards offer “free” rewards to people who spend enough money via the card. For example, some cards give carriers Amazon gift cards or flight miles as a percentage of the money charged to them.
This is not a way to make fast cash since it requires you to spend more than you’ll make. Still, it’s an excellent way to save for a yearly vacation or your holiday shopping fund without going out of your way more than it takes to sign up for the card.
More Short Term Investments
There are lots of other short term investments with little or no risk that we did not mention here. They include:
- Municipal bonds
- Roth IRA
- Treasury securities
- Arbitrage funds
- Money market accounts
The rates they offer are not as high as the options written about, however.
We also didn’t include the methods like gambling or even investing in the stock market that incur more than a little risk.
Letting your unused funds sit in plain old savings accounts is a waste. Start making your money work for you today. Before too long, you’ll have something to show for it.