Where To Put Short-Term Savings

Not every dollar we save is funneled into retirement accounts. Sure, having long-term goals is terrific, but most of us have short-term goals we want to accomplish as well. Whether it’s saving for a wedding, a down payment on a house, or future travel plans, we all encounter situations where we need to save money but don’t have the time horizon to ramp up the risk.

At the same time, we don’t want our savings languishing in a checking account slowly losing purchasing power. If you’re looking to save for a year or two but still want to get some bang for your buck, here are some options on where to put short-term savings.

If you need assistance with your finances, work with a professional financial advisor from Good Life Financial Advisors of Mt. Pleasant. We’re ready to help create a personalized plan for your specific needs.

Risk-Free Options

A checking account isn’t the only FDIC-insured vehicle where short-term savings will be completely safe. You certainly won’t get rich using these options, but they have risk-free interest and you only need to surrender a little bit of control:

Online Savings Accounts

Until the coronavirus pandemic hit, many online savings accounts were offering interest rates north of 2%. Online banks can offer better rates on savings than brick-and-mortar banks since their costs are easier to keep down. Seeing the success of these accounts, large institutions like CitiBank and Goldman Sachs entered the online space with high-interest savings accounts of their own.

However, interest rates have dropped due to the pandemic. Now you’ll struggle to find anyone offering more than 0.6% on savings, even through Goldman Sachs’ Marcus. Additionally, many banks will require a minimum balance in order to get the best rate, but you’ll usually get a debit card and check-writing privileges.

Money Market Accounts

Money market accounts are similar to online savings accounts, but the interest rate is variable and restrictions are in place on withdrawals and transfers. Banking regulations limit money market accounts to six electronic transfers or payments per month and you probably won’t get checks. If all things are equal, online savings accounts are usually the superior option here.

Certificates of Deposit (CDs)

Certificates of Deposit (CDs) can earn higher interest rates than savings or money market accounts, but you’ll need to be comfortable locking your money up for a certain period of time. CDs have lockup periods ranging from 3 months to 5 years and you’ll be penalized for accessing the funds early. But rates can be high and CDs are insured up to $250,000. CD ladders are a common strategy used to leverage high rates while managing your personal cash flow.

Low-Risk Options

The following vehicles aren’t FDIC insured and your rate of return is a little less certain than savings accounts or CDs. However, these are amongst the safest bond investments on the market and usually provide a better short-term return than risk-free options:

US Treasuries

Treasuries are the short, medium, and long-term bonds sold by the federal government. When you buy a Treasury, you’re loaning the government money and getting it back (plus interest) when the bond reaches maturity. The federal government has never defaulted, so treasuries are considered some of the safest bonds in the world. These bonds are auctioned online in lengths as short as 4 weeks to as long as 30 years.

Government Bond Funds

Bond funds are often riskier than treasuries since they can include municipal and international bonds, which don’t have the perfect default record of the Treasuries offered by the federal government. However, since government bond funds combine various types and lengths of government debt, you’ll often get a better return than just purchasing Treasuries.

Short-term US Corporate Bond Funds

Buying a short-term corporate bond fund might be the riskiest choice on this list, so only consider it if you really need the extra return or your time frame is at least a few years. Corporations in the United States default frequently, but bonds from blue-chip US companies are considered some of the safest corporate bonds in the world. Since corporate debt faces a higher risk of default than federal government debt, the returns offered by these bonds are often far superior. Purchasing a corporate bond fund helps spread the default risk over many different companies which helps prevent big principal losses.

Which Vehicle is Right for You?

So, which vehicle is the best for your short-term savings? It depends on your time frame and goal. If you need the money soon and can’t afford to lose any principal, consider an online savings account or CD. But if you’re planning for a wedding in 2-3 years and can afford to take a little bit of risk, government or corporate bond funds can offer a stable return and minimal volatility.

Work With an Experienced Financial Advisor

Knowing where to put short-term savings is important. If you have any remaining questions or need a financial recommendation, reach out to a team member from Good Life Financial Advisors of Mount Pleasant today!


The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal.

No strategy assures success or protects against loss.