Smith 
When picking the best short-term investments for the next five years, focus on liquidity, expectations, and risk. You need your money to be easily accessible, so opt for investments that aren’t too risky. Although you might not get returns as high as long-term investments, keeping your investment safe is worth it.
So, what are the best short-term investments right now? Let’s explore top options for two timelines: up to three years and up to five years.
If you have cash to invest for up to five years and want to know where to put it, read on to see our top picks and how they compare in terms of risk and reward.
Best Ways to Invest for the Short-Term: Comparison Table
For Less Than 3 Years:
High-Yield Savings Accounts:
- Potential Interest Rate: 4.25% or more.
- Risk-free and FDIC insured up to $250,000, these accounts offer over 4% APY and have minimal or no fees.
Money Market Accounts:
- Potential Interest Rate: 4.05% or more.
- These accounts often pay more than savings accounts and offer ATM cards and checks. FDIC insured and based on account balance.
Crypto Savings Accounts:
- Potential Interest Rate: Up to 8.05% APY.
- Earn interest on crypto deposits, but interest rates can fluctuate, and there’s no FDIC insurance. Risk of digital theft and fees to sell crypto.
Real Estate Investment Trusts (REITs):
- Potential Interest Rate: Varies.
- Invest in companies owning income-producing real estate without owning property. Fundrise offers REITs with as little as $10. Returns can be high but not guaranteed and less liquid.
Short-Term Notes:
- Potential Interest Rate: 4.6% or more.
- For accredited investors, Yieldstreet offers investments starting at $500. These notes have no hidden fees and provide some liquidity in as little as six months.
Comparison for 3 Years or Less:
| Investment Type | Potential Interest Rate | Description | Top Options |
|---|---|---|---|
| High-Yield Savings Accounts | 4.25% or More | Low-Risk, Liquid, FDIC-Insured | CIT Bank, Discover, Save Better |
| Money Market Accounts | 4.05% or More | Slightly Higher Returns, With Liquidity | CIT Bank, Save Better |
| Crypto Savings Accounts | Up to 8.05% APY | Risky Crypto Savings, Varying Interest | Gemini and Others |
| Real Estate Investment Trusts (REITs) | Varies, Potentially High | Low-Risk Real Estate Investment, No Landlord Duties | Fundrise (Example) |
| Short-Term Notes | 4.6% or More | Accredited Investor Option, Low Minimum, Short-Term | Yieldstreet |
For Up to 5 Years:
If you can invest for up to five years, you might consider taking slightly more risk for higher returns. However, these investments may offer less liquidity.
Roth IRA:
- Potential Interest Rate: Varies.
- A retirement account funded with after-tax income, allowing you to withdraw contributions anytime, but earnings are penalized if withdrawn before retirement age. Options include mutual funds, index funds, ETFs, or bonds. Some rules and income limits apply.
Short-Term Bond Funds:
- Potential Interest Rate: Varies.
- Managed by financial advisors, these bonds mature in two years or less and offer higher yields. Available via M1 Finance and E*TRADE.
Exchange-Traded Funds (ETFs):
- Potential Interest Rate: Varies.
- Pooled investments that match a specific index, tradeable during the day. Lower minimum investment amounts and tax-efficient. However, you can lose money in the short term.
Short-Term Corporate and Municipal Bond Funds:
- Potential Interest Rate: Varies.
- Corporate bonds offer potential higher returns but are riskier. Municipal bonds are generally safer with certain tax exemptions. Tradeable via brokerage accounts.
Series I Savings Bonds:
- Potential Interest Rate: 6.89%.
- Government-backed bonds with a fixed and variable rate. Not as liquid—cannot cash out for at least one year and penalized for early withdrawal. Each individual can only purchase up to $10,000 annually.
Bonus Idea: Real Estate Hard Money Loans:
- Potential Interest Rate: Varies.
- Loans with looser borrowing requirements and quicker funding but higher interest rates and down payments. High risk but potentially high returns. Not as liquid as other investments.
Best Investment Options for Short-Term Gains (Up to 5 Years):
| Investment Option | Interest Rate | Description | Stability | Liquidity | Transactional Costs |
|---|---|---|---|---|---|
| Roth IRA | Varies | Tax-Advantaged Retirement Account for Short-Term Investing | Varies | High | Varies |
| Short-Term Bond Funds | Varies | Professionally Managed Bonds With Higher Yields for Short-Term Investors | High | Low to Medium | Varies |
| Exchange-Traded Funds (ETFs) | Varies | Pooled Investments Mirroring Indices or Sectors, Offering Flexibility | Varies | High | Varies |
| Short-Term Corporate and Municipal Bond Funds | Varies | Mix of Corporate Bonds for Potential Returns and Municipal Bonds for Safety Requires Brokerage Accounts | Varies | Medium | Varies |
| Series I Savings Bonds | 6.89% (Variable) | Government-Backed Bonds With Fixed and Variable Rates, Some Liquidity Restrictions | High | Medium | Low |
| Real Estate Hard Money Loans | Varies | Riskier Real Estate Loans With Faster Access to Funds and Higher Returns, but Limited Liquidity | Low | Low | Varies |
Key Considerations for Short-Term Investments:
- Stability: Low risk of losing money over the short term.
- Liquidity: Easily accessible money within the investment timeline.
- Low Transaction Costs: Minimal fees for accessing or investing your money.
Each recommended investment comes with its own set of pros and cons. For instance, Series I Savings Bonds offer 4.3% guaranteed returns but aren’t accessible for one year and incur penalties for early withdrawals. In contrast, high-yield savings accounts are protected by FDIC insurance and accessible anytime but offer lower interest rates. Achieving a higher yield often requires taking on more risk or compromising liquidity. The best short-term investment balances these factors based on your risk tolerance and liquidity needs.
