If you have a near-term goal you want to save for, like a vacation or moving costs, you'll want to earn the best possible return while taking as little risk as possible. However, a shorter timeline doesn’t mean you need to let your cash sit idle — there are several ways to help your money grow.
What is a short-term investment?
Money you'll need within five years 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 for your savings goal, you'll want to consider:
How much risk you're willing to take on
Do you want to earn interest on your money (lowest risk) or invest your money in a low-return fund (slightly higher risk)? Higher-risk investments, like individual stocks or even equity mutual funds, are generally discouraged for short-term investing.
How liquid the investment is
How easy is it to get money out of the account? You typically have near-immediate access to your funds in a HYSA, for example, but in a CD, you'd have to wait until the term is up to access your money without facing penalties.
When you'll need the money
You may choose a different — perhaps higher-yield — investment if you're saving for something four years away rather than, say, three months away.
6 short-term investment options
- Best for growing an emergency fund → HYSA
- Best if you already invest → Cash management account or cash sweep
- Best if you have a set deadline → CD
- Best for government-backed returns → Money market fund or bond fund
👉 The caveat? These accounts can work for a variety of goals, not just the ones listed. Whether you're saving for a down payment or next year's summer travel, this list may have an account that works for you. Keep reading to learn more about the rules and potential returns of each investment.
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.
- 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
Nerdy Perspective
I had long held the misconception that there must be a “catch” to earning interest through a high-yield savings account. I assumed they must charge fees, require a steep minimum deposit, and have strict rules around withdrawals. Because of this, it didn't seem like the right place to keep my emergency fund. Now, I wish I had done my research sooner. In reality, there are many high-yield savings accounts that don’t have these drawbacks. Don’t let your assumptions scare you away from earning interest on your savings — just be sure to read the fine print before you sign up.
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 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. 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 will 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: 3%+.
- 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
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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 risk-free 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.
Remember that you may want to avoid locking your money up in a long-term CD when interest rates are rising. However, when rates are expected to fall, CDs can allow you to lock in a high rate. Note that CDs may have a minimum deposit requirement.
- 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.
» Next step: View our list of the best CD rates
Best for government-backed returns: 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. Like some other investment options on this list, money market funds are covered by SIPC insurance, not FDIC insurance.
- Potential interest rate: 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: the borrower could default, or bond values could decline when interest rates rise.
To reduce the risk of default, 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 they're becoming more readily available.
- Potential interest rate: 4%+.
- 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. Registered NerdWallet users can access a Treasury account through a collaboration with Atomic. Public, an online broker that NerdWallet reviews, offers a similar account. Or if you'd prefer to invest through a robo-advisor, Wealthfront offers an automated Treasury bond ladder.
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- 1.Federal Deposit Insurance Corporation. National Rates and Rate Caps. Accessed Aug 5, 2025.
