What is a short-term investment?
Money you'll need within five years for an upcoming goal (e.g., home upgrades or a vacation) falls into the short-term investing category. Ideally, the best short-term investments should provide a safe, easily accessible place to put cash while also earning some interest.
When deciding which short-term investment might work best, you'll want to consider three things: how much risk you're willing to take on, how liquid the investment is, and when you'll need the money.
6 short-term investment options
Our editors ranked the following investments based on potential yields, accessibility and general risk. Some fine print to take with you: These accounts can work for a variety of goals, not just the ones listed.
Best for growing an emergency fund: High-yield savings account (HYSA)
Best if you already invest: Cash management account or cash sweep
Best if you have a set deadline: CD
Other investments to consider: Money market fund or bond fund
🚨 News update: The Federal Reserve raised rates this September for the first time since 2023. A hike generally isn't welcome news if you're borrowing money, but savers often benefit. Several vehicles on this list — high-yield savings accounts, cash management accounts, brokerage cash sweeps, newly issued CDs and money market funds — are influenced by the federal funds rate. So when interest rates go up, the rate you're paid usually goes up, too. Which means now might be a good time to earn some extra money.
🗞️ What's next + how to stay in the loop: We write a weekly newsletter called The Nerdy Investor that highlights the biggest forces that are moving markets. When rates rise or fall, we'll let you know. You'll also get updates on new brokerage products designed for beginners and easy-to-understand explanations of industry terms and jargon. Click here to sign up for free.
Best for growing an emergency fund: HYSA
High-yield savings accounts (HYSAs) allow you to deposit money into an interest-bearing bank account that typically offers higher-than-average annual percentage yields (APYs) compared with a typical savings account. The higher your balance is, the more interest you can collect on your funds over time. Bank savings accounts are also FDIC-insured, meaning that up to $250,000 of your money per institution, per depositor, is protected in case of a bank failure.
NerdWallet’s analysis shows that the annual percentage yields for high-yield online savings accounts are currently above 4%. This may not sound like much, but it’s higher than 0.38%, the current national average interest rate on savings accounts and what you’ll likely be offered at your hometown bank branch.
What to keep in mind: HYSA interest rates follow the Federal Reserve, meaning they are variable and can change throughout the year.
Potential interest rate: 4%+.
Liquidity: High. You can withdraw your money at any time, but it may take up to a few days for the money to actually hit your external bank account.
Where to open one: Any physical or online bank that offers a HYSA. The bank that works best for you depends on the type of interest rate you're looking for, as well as other factors such as convenience, deposit and withdrawal times, bonuses, and whether you want to open additional accounts within that bank's ecosystem.
» Next step: Our picks for the best high-yield savings accounts
Best if you already invest: Cash management account or cash sweep
About cash management accounts
Another alternative for short-term savings is a cash management account. These accounts tend to offer services you'd expect from traditional savings and checking accounts — such as debit cards, check writing, mobile check deposit, bill pay, money transfers, goal-setting and overdraft programs — but are offered by online brokerage firms and robo-advisors instead of banks. The benefit here is that as an investor, you can keep all your funds under one roof. If you're an active investor, you may want to have your money quickly accessible for trading. You may also get higher interest rates on that parked cash than you might find by placing your money in a traditional savings account.
To provide insurance, cash management accounts often sweep funds into partner banks, where the funds may then be covered by that bank's FDIC insurance. In some cases, the cash management account will partner with multiple banks, which can raise your overall FDIC insurance limit, since the limit is per institution.
Potential interest rate: 4%+.
Liquidity: Very high. Your money is immediately available. You can use this account similarly to how you'd use a checking account.
Where to open one: Any brokerage or robo-advisor that offers cash management. You'll want to consider interest rates, any additional fees you might incur and whether you'd like to use that provider for investing services in addition to cash management.
» Next step: View our list of the best cash management accounts
About brokerage cash sweeps
Some — but not all — brokerage firms pay a high interest rate on uninvested cash. This could be money you've chosen not to invest, dividend payments that aren't reinvested, profits from the sale of an investment or other cash that has accumulated in your account.
Some brokers may call this buying power — it is effectively the cash available to buy securities. But it doesn't have to be used that way, and if you opt for a brokerage firm that pays a high interest rate, you can earn a return on that idle money.
One thing to keep in mind: In most cases, this uninvested cash will be covered by SIPC insurance, not FDIC insurance. SIPC protects up to $500,000 (up to $250,000 of that can be cash) per person, per brokerage account in the event the brokerage firm becomes insolvent.
Potential interest rate: 3%+.
Liquidity: High. Similar to a HYSA, if you want to transfer funds to an external bank account, the request may take up to a few days to process.
Where to open one: Since cash sweeps are merely one of the offerings that many brokerage accounts have, you'll want to make sure you open an account with a firm that meets your expectations when it comes to fees and usability as well.
Best if you have a set deadline: CD
Certificates of deposit — also known as CDs — can be a good lower-risk savings option for money you are sure you don’t need for a set period of time. They work like this: You agree to put money into a bank account for a set period of time (ranging from three months to five or more years) in order to collect a preset, guaranteed interest rate on those funds. In general, the longer the term, the higher the interest rate.
Speaking of interest rates: As we mentioned earlier, the federal funds rate affects how much you can earn in a CD. When interest rates are high (as they are now), the rate you're paid when putting your money in a new CD will usually be higher, too. The catch is, once your money is locked in a CD, if interest rates rise again, you're stuck at a lower rate. But on the flip side, when interest rates are high and are expected to go down, you get locked in at that higher rate.
Our take? It's good to keep interest rates in mind when putting your money in a CD, but if you're happy with the current rate and you are comfortable putting your money away for the designated time, try not to let outside noise be too much of a distraction.
Potential interest rate: 4%+, depending on CD term.
Liquidity: Low. If you need to withdraw your money before the CD term is up, you’ll typically pay a penalty of three to six months’ interest.
Where to open one: Most banks and financial institutions offer CDs. When choosing a CD offer, it can be helpful to look at rates and terms to find a good fit for your particular goal. Note that CDs may have a minimum deposit requirement.
» Next step: View our list of the best CD rates
Other investments to consider: Money market fund or bond fund
About money market funds
Not to be confused with similarly named money market accounts, money market funds are mutual funds that purchase short-term, high-quality debt from the U.S. government, municipalities or corporations. Some money market funds hold municipal securities that are exempt from federal and state taxes.
Money market funds are considered a relatively safe investment — they're more stable than both stocks and bonds.
Potential yield: 3%+.
Liquidity: High. As with some other investments on this list, you may need to wait a few days for your transfer request to be completed.
Where to buy: You can purchase money market funds through an online brokerage account. While yield is one aspect to consider when choosing a fund, you'll also want to look into any expenses that could eat into your returns, like a fund's expense ratio and other fees.
» Next step: See our picks for the best brokers for mutual funds
About bond funds
A bond is a loan to a company or government that pays back a fixed rate of return. A bond is generally considered a safer investment than stocks, but it still carries some risks.
For one, the borrower could default. To reduce this risk, choose bond funds that primarily own government bonds or invest through a Treasury account, which typically invests in Treasury Bills, holds them to maturity and then reinvests the proceeds in more T-bills. Treasury accounts aren't as common as CDs or savings accounts, but you may be able to buy Treasurys through a brokerage account.
And second, there's also the risk that bond values could decline when interest rates rise. Bonds are indirectly affected by the federal funds rate, so it's not as simple as "interest rates rise, and so does your return." If you're looking to buy new bonds, yields may be higher after a rate hike, but any existing bonds may lose their market value.
Potential yield: 5%+.
Liquidity: High. Once you've sold your shares and the cash has settled in your account, you can transfer your funds to an external bank account, which can take up to a few days.
Where to buy: You can purchase bond funds via an online brokerage account. Our editors analyzed the best brokers for Treasury bonds, and the providers highlighted below came out on top. Registered NerdWallet users can also access a Treasury account through a collaboration with Atomic. You can also buy directly from TreasuryDirect.gov.
Article sources
- 1.Federal Deposit Insurance Corporation. National Rates and Rate Caps. Accessed Aug 5, 2025.
