The Best Short Term Investing Options

Hello readers of Investor Tip! I'm Matthew Paulson of Getting Green, which is a financial webzine that exists to help you make you a better steward of money. I teach sound and conservative financial principals and put special emphasis on personal behavior. Getting Green will provide you daily wisdom and practical tips to help you become financially secure. Be sure to check out Getting Green.

Most of us have done a lot of research into where we should be putting our money for retirement. We make use of tax advantaged accounts and research the mutual funds that we put money into. However we rarely put a lot of thought into where we should put money on the short term, say if we are saving up for a vacation or for a new car. Where should we put our money then? Let's find out.

First, let's define what a short term investment is. This is money that you will need on a short term basis, within 5 years. You don't want to add a lot of risk to this investment, because doing so could cause you to not have the money when you need it the most. Over a long period of time risk and fluctuations tend to work themselves out and give you a higher rate of return, but we need this money soon, so we should focus on avoiding risk.

There are a few different options that we have for short term investments that are very safe and you are extremely unlikely to lose any money in, including putting the money in a jar, putting it in a savings account at your local bank, in a high-yield online savings account and a certificate of deposit.

Under Your Mattress - A lot of people might think this is a very safe place to put money, however it's really a bad idea to leave a pile of cash at home. There's always a chance that a thief could steal it, or it could get lost in a natural disaster or a fire. In addition, your money is getting less valuable over time because of inflation. This is probably the least safe place you can put your money, because you're guaranteed to lose value over time.

Savings Account at The Bank - Your money will be very safe at your local bank, however you won't get much back for it. The national average for savings accounts is about 0.6%. Your money will be readily accessible in your local bank's savings account and you know it will be there. This is probably not the best option because of the low rate of return.

High-Yield Savings Account - This is a great option for short term savings. You can find a much better rate of return than your local bank. It's basically a savings account at an online bank that you can transfer money back and forth between your checking account. I suggest that you use ING Direct for your online savings account. It currently offers 4.5% APY on your money, which is not the highest, but they have great customer service and excellent security features. You can get a $25 bonus for signing up for ING Direct if you email me at paulsonm@pluto.dsu.edu. I'll have the special link emailed to you.

Certificate of Deposit - Certificates of deposit offer a little bit better rate of return than high-yield money savings accounts, however they're not ideal for short term investing. Usually when you are saving money, you want to put a little bit in at a time until you save up and have all the money for the purchase. Certificates of deposits are inflexible in the time period that you want to invest the money, and you can only do lump sum investing.

Overall a high-yield money savings account is definitely the best place to go for your short term savings and investing needs. There's not any risk to speak of and you'll get a decent rate of return on your money.