5 Best Short Term Investments in April 2023

Editor’s Note: The APYs listed in this article are up-to-date as of the time of publication. They can fluctuate (up or down) as the Fed rate changes. CNBC Selection will update as changes become public.

There are many good reasons why you might want to invest your money in the short term. Perhaps you want to use that cash to buy a new car, pay off a first-time mortgage, plan a wedding, or simply build an emergency fund.

For all these goals, cash needs to be kept in a place where it is safe and easily accessible. Enter short-term investment vehicles: The perfect place to accumulate the cash you need over the next five years.

Although short-term investments usually come with lower returns than long-term investments, they can diversify your income and offer flexibility when you need it. Short-term investments are distinguished by being highly liquid, stable and relatively low-risk, so you can rely on your money there when you need to withdraw it quickly at low (or no) cost.

For all your short-term money needs, here are five of the best investment vehicles:

High-yield savings accounts are as safe and easy to access as your traditional brick-and-mortar savings account at a major bank, but offer much higher returns (both accounts have variable APY rates).

You can rest assured that your money is protected by FDIC insurance up to $250,000 per depositor per bank and you can deposit into your account at any time. Note that even though the Federal Reserve has removed Regulation D — which limits “convenient” withdrawals and transfers to no more than six per month — banks generally still enforce this restriction.

The high-yield savings accounts below offer above-average APYs and don’t enforce a limit on the amount you can withdraw or transfer. Both Lending Club High-Yield Savings and UFB Preferred Savings offer you a free ATM card, making it easy to access your savings account on the go.

A certificate of deposit, or CD, is another type of deposit account that’s federally insured up to $250,000 per depositor per bank — meaning your cash is safe up to that limit.

Unlike CD high-yield savings, however, they are not accessible. Traditional CDs lock up your money for a certain period of time, but the key is how long you choose so you know what to expect. CD tenures vary in length, typically between three months and five years, and typically the longer the term, the higher the fixed interest rate.

CDs can be good short-term investment vehicles because in a high-interest-rate environment, they allow you to lock in a good rate for three years, during which time you can plan to get ready to buy a home. With a CD, you make a one-time deposit when you open the account, and you don’t contribute to it like savings until the CD matures.

If you feel like you need more access to cash or don’t necessarily want to commit to locking it up, you can go with a no-penalty CD, which allows easy withdrawals cost-free (just make sure the rate offered is worth it ). Other types of CDs also exist, such as add-on CDs that allow for additional contributions.

Banks like Ally Bank and Synchrony Bank offer no-penalty CDs

The third deposit account on this list, money market accounts, or MMAs, are stable vehicles for your short-term investments because they offer standard FDIC insurance up to $250,000 per depositor per bank.

With MMA, you can deposit cash at any time, and depending on your bank, the same six-per-statement-cycle withdrawal or transfer limit may apply. MMAs offer variable interest rates and checking account features, such as check-writing facilities, debit cards, ATM access and out-of-network ATM fee reimbursement. Cash withdrawals from ATMs are usually not subject to any imposed limits, so it always gives you direct and immediate access to your cash.

Ally Bank and Sallie Mae both offer top-notch money market accounts.

Issued and backed by the US government, government bonds are very safe and low-risk, making them ideal as short-term investments. Also, they offer reliable income. The US government bond market is also highly liquid, so you can easily sell and access your money. The best way to buy government bonds is directly from the government through TreasuryDirect.gov.

In addition to buying bonds directly, you can also invest in a government bond fund. Bond funds give you access to different types of bonds so you can invest in a mix.

Treasury bills, or T-bills, are a type of fixed income security issued by the government with a short maturity of less than one year. T-Bills are almost risk-free and highly liquid, meaning they are a very safe place to park your soon-needed cash

Note, however, that T-bill returns generally react inversely with the Federal Reserve benchmark rate; A higher rate set by the Fed means lower returns on T-bills. In contrast, high-yield savings and CDs typically increase their rates as benchmark rates rise.

You can buy T-bills directly from the government through TreasuryDirect.gov or through brokerages like Fidelity and Charles Schwab.

Short-term investment vehicles are a smart choice for those looking to prioritize stability and accessibility when it comes to their money, rather than maximum returns. In addition to being highly liquid, most of the accounts on this list are FDIC-insured so your investment is protected. And you have options ranging from a high-yield savings account, CDs and money market accounts to government bonds and Treasury bills.

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