Question: Where Should I Park My Short-Term investments?

When it is all said and done, there are only two kinds of investments — long-term and short-term.

Long-term investments should be money that you are not going to touch for more than 5 years.  This category involves retirement planning and overall wealth building.  This money does not need to be as liquid as short-term investments, meaning you can put the money in real estate or a start-up business.

Short-term investments should be money that you need to be more accessible and readily available for you to use at short-term notice.  Short-term investments should be savings for things that are less than 5 years down the road.  This might include saving for a car, a down payment on a house, car/house maintenance, or other high dollar personal items. 

My best friend asked me the other day where he should start putting aside some short-term investment money.  He realized that the local banks have piss poor investment products like their savings accounts that make 0.00011352354% annual interest or their money market accounts that make about 2/10’s more annually.  (i’m exagerrating if you have not noticed yet).  Anyway, I referred him the wonderful world of internet banking. 

ING Direct has its Orange Savings Account that average a 3.8% to 4% annual interest rate, which is not too shabby.  ING’s accounts are all FDIC insured, as well.  Emigrant Direct and HSBC direct are two other banks that offer online savings accounts at great rates like 4.25% and 4.8%, respectively.  I like ING direct because of their transfer and automatic transfer features. 

Paypal has an option to where someone can turn their account into a money market account, and I believe it currently makes around 4.5% annually.  The only difference is that this account is not FDIC insured as the other three are insured by the FDIC. 

Let’s face it, you are not going to get rich off of these returns, but they are the best alternative to letting it rot in a Bank of America or Wachovia savings/money market account.  The only downside to the online acocunts is that it takes 2-3 business days to transfer money back and forth from the savings account to your checking account.  You just have to be more mindful of events coming up, so that you can plan for transferring the money ahead of time into your checking account.

I would not bother with a Certificate of Deposit at your local bank.  In my opinion, they are a waste of time with the advent of online savings accounts that offer great interest rates.  You can probably find a 5-6% 5 year CD, but then your money is tied up for that long!  And believe me, there is ALWAYS a hefty penalty for taking it out before the maturation of the CD. 


  • Phil

    One caveat about the HSBC rate: it’s only in effect until April 30th. After that, it changes to whatever they decide, which will probably be much lower.

    I’m a fan of a safe bond fund like Vanguard Total Bond Market Index (VBMFX)
    The yield is currently above 5% and it holds mostly 5 year US Treasuries and AAA-rated corporate bonds, which only have a tad more risk than an FDIC-insured account (realistically, it’s the same, since the chances of the FDIC staying together if the US gov’t and every major corporation failing is pretty unlikely).

  • Erik

    That is a good point about the HSBC account. All of the internet accounts are boasting a higher return for new deposits up until the tax deadline. After that they will probably drop about a .5% point.

    thanks for the tipe about the vanguard fund. I will check it out.

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