I have a short period of time (1 year or less) during which I will have money to invest. What are my investment options?

By Investopedia Staff AAA
A:

If you only have a short period of time in which to invest your money (i.e. less than one year), there are several investment options you should consider outside of the typical checking and savings accounts, which pay very little or no interest. These alternative short-term investments are known as money market securities.

For example, you might want to consider a Treasury bill (T-bill), a U.S. government debt security with a maturity of less than one year. T-bills ares one of the most marketable securities around the world, and their popularity is mainly due to their simplicity. The maturity for a T-bill is either three, six or 12 months, and new ones are typically issued on a weekly basis. The constant issue of new T-bills and the competitive bidding process mean that T-bills can be easily cashed in at any time. Furthermore, banks and brokerages traditionally charge a very low commission on trading T-bills. You can purchase Treasury bills in the U.S. through any of the 12 Federal Reserve banks or 25 branch offices.

Commercial paper is another investment you might want to consider. It is an unsecured, short-term loan issued by a corporation, typically for financing accounts receivable and inventories. It is usually issued at a discount to reflect current market interest rates. Maturities usually range no longer than nine months and, because of their slightly higher risk, they usually offer a higher rate of return than a T-bill.

Certificates of deposits (CDs) are time deposits at banks. These time deposits may not be withdrawn on demand like with a checking account and are generally issued by commercial banks, although they can also be bought through brokerages. They carry a specific maturity date (three months to five years), a specific interest rate that is slightly higher than T-Bills and can be issued in any denomination. However, the amount of interest you can earn depends on the amount and length of the investment, the current interest rate environment and the specific bank. While nearly every bank offers CDs, rates can vary widely, so it's important to shop around.

Banker's acceptance (BA) are short-term credit investments created by non-financial companies and guaranteed by a bank. They are traded at a discount to face value in the secondary market. For corporations, a BA acts as a negotiable time draft for financing imports, exports or other transactions in goods. This is especially useful when the creditworthiness of a foreign trade partner is unknown. The advantage of BAs is that they do not need to be held to maturity and can be sold off in the secondary markets where they are constantly traded.

(For further reading on these subjects, check out Money Market Tutorial.)

RELATED FAQS

  1. How long can I hold my HH/H Bonds and still earn interest?

    Take advantage of your bond investment and learn how long you can hold on to your Series H/HH Bonds and still earn interest ...
  2. How long will it take for a bond to reach its face value?

    Learn when different savings bonds reach face value, and determine the best time to cash them in to get the highest return ...
  3. How do I sign up for a TreasuryDirect account?

    Invest in Treasury securities by dealing directly with the U.S. Department of the Treasury online, conveniently managing ...
  4. What is the difference between EE and I Bonds?

    Read about the similarities and differences between the EE and I savings bond programs created by the U.S. Department of ...
RELATED TERMS
  1. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
  2. Short Put

    A type of strategy regarding a put option, which is a contract ...
  3. Wingspread

    To maximize potential returns for certain levels of risk (while ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt ...
  5. Volatility Smile

    A u-shaped pattern that develops when an option’s implied volatility ...
  6. Nadex

    Nadex stands for the North American Derivatives Exchange, a regulated ...
Related Articles
  1. First time stock investors may ask, is there any way to buy insurance on stocks to prevent losses?
    Options & Futures

    Stock Safety: Top 3 Ways to Limit Your ...

  2. Options & Futures

    Applying Binary Options To Equity Markets

  3. Investors can use derivative securities to effectively buy insurance on their individual holdings or on their portfolio as a whole.
    Options & Futures

    Can You Buy Stock Insurace? 3 Strategies ...

  4. With more ETFs to trade, the risks associated with these investments have grown. To mitigate these risks, ETF options are a hedging strategy for traders.
    Mutual Funds & ETFs

    ETF Options Hedge Risk of ETF Trades

  5. Options & Futures

    Pick The Right Options To Trade In Six ...

Trading Center