Luis Pazos 
When deciding on the best short-term investments for the next five years, focus on three main factors: liquidity, expectations, and risk. You want your cash to be easily accessible, meaning you should invest in a way that keeps your risk low. While this usually results in lower returns compared to long-term investments, it’s the trade-off for keeping your investment "safe."
So, what are the top short-term investments right now? We’ll break down the best options for timelines up to three and five years. If you’re looking to invest your money for up to five years, keep reading to see our top picks and how they balance risk and reward.
Best Investments for Less Than 3 Years
High-Yield Savings Accounts
Interest Rate: Around 4.25% or more
High-yield savings accounts offer a risk-free short-term investment with a lower but guaranteed return. They come with FDIC insurance, protecting up to $250,000 per account. Check out CIT Bank, Discover, and Save Better for good rates.
Stability: High
Liquidity: High
Transactional Costs: Low
Money Market Accounts
Interest Rate: Around 4.05% or more
These accounts often pay slightly more than savings accounts and provide ATM cards, checks, and deposit slips. Your funds are FDIC insured for added security. CIT Bank and Save Better are good options.
Stability: High
Liquidity: High
Transactional Costs: Low
Crypto Savings Accounts
Interest Rate: Up to 8.05% APY
While these accounts can offer high returns, they come with risks such as interest rate fluctuations and the absence of FDIC insurance. Gemini is an example of a platform offering up to 8.05% interest on crypto deposits.
Stability: Risky
Liquidity: Medium
Transactional Costs: Varies
Real Estate Investment Trusts (REITs)
Interest Rate: Varies
REITs let you invest in real estate without the headaches of being a landlord. Funds like Fundrise offer private equity REITs with as little as $10.
Stability: Medium
Liquidity: Low to Medium
Transactional Costs: Varies
Short-Term Notes
Interest Rate: Around 4.6% or more
Yieldstreet offers short-term notes starting at $500, payable in as little as six months. There are no hidden fees, making it a straightforward investment option.
Stability: Medium
Liquidity: Medium
Transactional Costs: Low
Best Investments for Up to 5 Years
Roth IRA
Interest Rate: Varies
A Roth IRA can be used for short-term investing. You can withdraw contributions anytime, though earnings have penalties for early withdrawal. Check platforms like M1 Finance, Betterment, and E*TRADE to open an account.
Stability: Varies
Liquidity: High
Transactional Costs: Varies
Short-Term Bond Funds
Interest Rate: Varies
These professionally managed bond funds offer higher yields over short-term periods, usually less than two years. M1 Finance and E*TRADE are good for buying bonds.
Stability: High
Liquidity: Low to Medium
Transactional Costs: Varies
Exchange-Traded Funds (ETFs)
Interest Rate: Varies
ETFs track indices like the S&P 500 and can be traded throughout the day. They are tax-efficient and have low fees, making them suitable for diversifying your portfolio. They are highly liquid but come with the risk of short-term loss.
Stability: Varies
Liquidity: High
Transactional Costs: Varies
Short-Term Corporate and Municipal Bond Funds
Interest Rate: Varies
Corporate bonds offer higher returns but more risk, while municipal bonds are considered safer. A brokerage account with firms like E*TRADE is required to trade these bonds.
Stability: Varies
Liquidity: Medium
Transactional Costs: Varies
Series I Savings Bonds
Interest Rate: 6.89%, subject to change
These government-backed bonds earn interest at a rate that is updated twice yearly. They come with liquidity restrictions and tax benefits, but you can only buy up to $10,000 per year.
Stability: High
Liquidity: Medium
Transactional Costs: Low
Real Estate Hard Money Loans
Interest Rate: Varies
These loans have looser borrowing requirements and faster fund access but come with higher interest rates and down payments. They are risky but can offer high returns.
Stability: Low
Liquidity: Low
Transactional Costs: Varies
When choosing a short-term investment, focus on stability, liquidity, and low transaction costs. Higher yields often mean more risk or less liquidity. The best option for you depends on how much risk you are willing to take and how quickly you need to access your money.
