Need Extra Cash This Fall? Consider These 6 Best Short-Term Investments
The combination of high-interest rates and high inflation has crimped the budgets of many Americans in 2023. Combined with the approach of the holiday season, fall is the perfect time to start boosting your income if you want to keep your budget balanced.
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While you might not be able to get a raise at work until year-end (although you shouldn’t stop trying), there are some investments you can make that can keep your money safe while still generating extra income. Here are 6 ideas that you may be able to use to put some more cash in your pocket.
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U.S. Treasury Bills
U.S. Treasury Bills are widely regarded as the safest investments in the world, at least in terms of capital loss. While you could technically lose a small amount of money if you bought a T-bill right before a sharp increase in interest rates and were somehow forced to sell it, the likelihood of that is very small. At maturity, T-bills are always paid off by the government from the sale of new bills and have never once defaulted.
While you won’t get rich off investing in T-bills, they can provide a boost to your short-term income – and in the current market environment, they’re actually paying a fairly high rate of return, at over 5% annually. Considering the safety of the bills and the fact that you’re earning a decent amount of money, this is one of the first places advisors will usually suggest you tuck away short-term money. If you’re in a high state income tax bracket, the effective return is even higher, as T-bills are exempt from state (and local) taxes.
High-Yield Savings Accounts
High-yield savings accounts are generally issued by online banks, who can afford to pay more interest because they don’t have the same overhead expenses as brick-and-mortar institutions. But all accredited online banks carry the same FDIC insurance that applies to the big banks like Chase and Bank of America, meaning they’re just as safe. As interest rates have steadily moved higher over the past year or two, high-yield savings accounts have paid more and more interest to investors, with most now offering yields of well over 4%. Considering these accounts are insured and highly liquid, they’re a great place to get some extra income out of your idle cash.
Certificates of Deposit
Certificates of deposit (CD) are slightly less liquid than Treasury bills and high-yield savings accounts, but they’re still a great way to earn some extra income in an insured investment. Typically, you’ll have to keep your money in a CD for a specified term or risk losing the interest you’ve earned along the way. But many CDs offer terms of 3 months or even less, meaning that unless you really need your money immediately, the early withdrawal penalty won’t likely come into play. Yields can vary significantly by institution, so it’s important to shop around when looking for a high-paying CD.
Money Market Accounts
Money market accounts have lost a bit of their shine over the years, as competing accounts like high-yield savings accounts and cash management accounts have sprung up across the financial landscape. But they still offer value for investors looking to earn some extra interest while still having check writing and/or debit card access to their money. Money market accounts often have minimum balance requirements that make them a bit more restrictive, but their yields are often in the neighborhood of their high-yield savings account brethren. Restrictions, accessibility, and APRs can vary significantly from bank to bank, so pay attention to the fine print.
Cash Management Accounts
Cash management accounts (CMA) seem very much like high-yield savings accounts, money market accounts or even checking accounts to the average investor. However, there are some slight differences. Cash management accounts are generally offered by fintech firms, robo-advisors or other non-bank institutions. As such, CMAs aren’t directly insured by the FDIC. However, most institutions offering CMAs sweep your cash daily into partner banks that do carry FDIC insurance, so as long as the institution doesn’t fail while your money is in transit, your money is generally protected. CMAs are a bit more flexible as they generally offer features like check writing and/or debit card access. Their yields are also generally comparable with those of high-yield savings accounts.
Ultra-Short Bond ETFs
Of all the options on this list, ultra-short bond ETFs likely carry the greatest risk of capital loss. Although they invest in very short-term bonds, typically with maturities of one year or less, their net asset values don’t fluctuate by a large amount. However, as exchange-traded funds are bought and sold on the open market, supply and demand – and general investor sentiment – can drive the actual share prices of these instruments up and down, sometimes without regard to the changes in their net asset values. However, these ETFs can also offer superior yields and they are extremely liquid, as you can sell them at any time the market is open.
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