Besides a certificate of deposit (CD), money market or savings account, what is available for short-term low-risk investing?
"You have already named most of the common investment vehicles used for short-term, low-risk purposes," said FPA member Chad Starliper, CFP®, CFP®, ChFC, CLU, EA, Director of Financial Planning for the Private Wealth Advisory division of Rather & Kittrell.
"Generally speaking, when individual investors have funds that are either earmarked for emergency purposes or for other short-term financial goals, it is usually prudent to store those funds in very safe and accessible places," Starliper said. "As you appear to understand, risk and return are closely related, so this kind of investment decision should probably be geared toward safety of principal, along with accepting very low rates of return."
"Many banks offer different rates of interest on checking, savings, money market funds, and CDs," he said. "It may be worth spending a little time investigating different institutions to see what they offer. In situations where the objective is to simply 'store' money, the banks services may be less important than the interest rates offered, assuming of course that these funds would be Federal Deposit Insurance Corporation (FDIC) insured."
Starliper said an alternative to a bank-related product would be short-term U.S. Treasury bills and notes, which, like CDs, can be purchased with a maturity that matches your approximate time frame for needing the funds. Also, he noted, they are very liquid, which means that you could sell them at any point when you needed the funds (though they would be subject to some changes in value if not held to maturity). These can be purchased through various banks, brokerages, or through the TreasuryDirect program.