The best places to park your short-term investments
As you sift among the various options for your short-term investments, keep these key items on your dashboard: yield, guarantees, liquidity and your individual situation.
The short-term investments that promise the highest yields often come with at least some risk and/or constraints on your daily access to funds. It may be that you're just looking for the highest safe yield and don't care that much about liquidity. Or maybe having ready access to your funds is the name of the game.
Also think through whether you value an ironclad guarantee or are willing to go without in exchange for a potentially higher yield. Some cash instruments are fully FDIC-insured, while others are not. On the short list of FDIC-insured investments are checking and savings accounts, CDs, money market accounts (not to be confused with money market mutual funds), and online savings accounts.
Certificates of deposit
CDs will typically offer the most compelling yields of all cash instruments, and they're also FDIC-insured.
Yet there are a couple of caveats. One is that minimum deposits for the highest-yielding CDs might be $25,000 or even higher. There's also a trade-off on the liquidity front: You'll usually pay a penalty if you need to crack into your holdings before the maturity date. The longer the term of the CD, the bigger the penalty for cashing out early.
Online savings accounts
If you want daily liquidity, a decent yield, and FDIC protection, your best bet will tend to be a high-yield savings account through an online bank or a savings account through a credit union. The former offers FDIC protection, up to the limits, whereas credit union accounts are insured by another entity, the National Credit Union Administration.
Money market mutual funds
Money market mutual funds also offer daily liquidity and the convenience of having those funds live side by side with your long-term investments. But money market fund yields are still generally below those of online savings accounts today. Additionally, money market mutual funds aren't FDIC-insured, though in practice most funds have done an excellent job of maintaining stable net asset values.
Don't confuse money market mutual funds with brokerage sweep accounts, though both are offered by investment providers. Interest rates on brokerage sweep accounts, which hold investors' cash that hasn't yet been invested, have ticked up a bit recently but are still well below other cash options.
Stable-value funds
Stable-value funds are another example of an investment that offers an often-decent yield in exchange for not checking the liquidity and guarantee boxes.
Stable-value funds are only accessible inside of company retirement plans. They invest in bonds, so they're not FDIC-insured; to protect investors' principal, they employ insurance wrappers to help maintain a stable net asset value. Just bear in mind that stable-value funds carry drawbacks. Because you can only own such a fund within a 401(k), you'll pay taxes and penalties to withdraw your money before retirement unless you meet certain criteria. So don't think of a stable-value fund as an emergency fund unless you're already retired or close to it.
Honorable mention: I Bonds
In contrast with the preceding investment types, I bonds are the only safe investment vehicles that will guarantee to make investors whole with respect to inflation. I bonds are Treasury bonds that pay a fixed rate of interest as well as another layer of interest that varies with the current inflation rate, as measured by the Consumer Price Index.
As attractive as that is, it comes with a few asterisks. If you redeem an I bond within five years of buying it, you'll forfeit three months' worth of interest. Purchase constraints are another drawback for large investors.
___
This article was provided to The Associated Press by Morningstar. For more personal finance content, go to https://www.morningstar.com/personal-finance
Christine Benz is the director of personal finance and retirement planning at Morningstar.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Daily Mail
19 minutes ago
- Daily Mail
Free email pioneer Yahoo has clever play to retake crown from Gmail
Yahoo Mail is getting a glow-up — and it's all about helping younger users blitz through their inboxes faster than ever. Although no longer the account du jour, Yahoo — the pioneer of free mass-market email — is putting itself at the forefront of implementing AI features to lure in younger users. Yahoo has launched 'Catch Up' designed to help users speed-read and sort their emails with minimal effort. Yahoo says it's part of the biggest upgrade to its email system in a decade, as it aims to win over a new generation of users who believe in working smarter, not harder Gen Z and millennials are one of Yahoo's fastest-growing demographics and already make up half of its Mail users. The new gamified tool will allow users to see a preview and summary before being given the option to 'delete' or 'keep in inbox'. Although Yahoo was first in the game, Gmail soon began poaching its users with a more user-friendly interface. The company lost even more customers after a massive data breach in 2013 exposed around 3 billion of its users information. 'People have been writing off or predicting the death of email for years,' Yahoo CEO Jim Lanzone told Bloomberg. 'But it has an incredibly consistent role in people's lives, both at home and work.' Lanzone, who was brought in to restructure the company in 2021, believed AI will be 'incredibly important to almost every product that we operate.' 'We just want AI working quietly in the background to simplify tasks across all the products that we operate from search to mail to finance to news,' he said. 'We don't want to ask people to have to engage or take an extra step or learn a new behavior.' Lanzone told the publication that Yahoo is also 'vintage', something that will help it stand the test of time. 'We're just getting started because we believe there's a lot of innovation that can be done. 'There is so much more on our roadmap,' he added. Dario Amodei, CEO of leading AI company Anthropic, has warned of mass unemployment The relentless march of AI continues to thrill investors and unnerve others. Dario Amodei, CEO of leading AI company Anthropic recently warned the technology could wipe out half of all entry-level white-collar jobs in the next one to five years. The billionaire said AI could also soon raise unemployment to 10 to 20 percent. He said the government and AI companies should stop 'sugar-coating' the job apocalypse on the horizon. Meanwhile, the FBI is warning Gmail users about a dangerous ransomware scheme that could hold your private data hostage. Medusa ransomware group has already victimized over 300 targets using phishing scams to exploit unprotected software in the users' digital devices.
The Independent
an hour ago
- The Independent
The deadline approaches for Trump's ‘90 deals in 90 days.' So far he has ‘frameworks' for two
President Donald Trump and his team promised '90 trade deals in 90 days,' but so far he has only 'framework' agreements for two countries in place. Trump's sweeping 'Liberation Day' tariffs ushered in on April 2 are set to go into effect on July 8. Skeptics said little progress has been made on making trade deals, leaving American businesses to deal with economic uncertainty. 'We were promised '90 deals in 90 days.' What we have at this point are 'general frameworks' for the U.K. and China,' Marc Short, who served in Trump's first administration as legislative affairs director, told Politico. Short, who also served as Vice President Mike Pence's chief of staff, said the Trump administration will 'hail these general frameworks as really significant breakthrough deals,' but other countries are watching closely. 'Other countries are seeing that, if I wait this out, [Trump's] going to be overly sensitive to bond market yields, or he's going to get himself into trouble, and then he's going to need to get out of it with a deal,' Short added. This week's trade deal progress with China has been touted as a major win by the White House. 'We're in a solid place going forward in these negotiations, because the country that could most push back here, tried to push back and it didn't really go well for them,' a White House official told Politico, adding that the administration 'feels good' about negotiations with others. Trump declared the deal was 'done' pending a 'final approval' by him and Chinese President Xi Jinping in a Truth Social post Wednesday. Last month the U.K. achieved a series of significant carve-outs from sweeping U.S. tariffs on its carmakers, steelworks and farmers. But the odds of scoring '90 deals in 90 days,' as White House trade adviser Peter Navarro touted in April, are now looking unlikely. Treasury Secretary Scott Bessent said it was 'highly likely' the July 8 deadline could slide for countries who are engaging in good faith negotiations with the U.S. 'There are 18 important trading partners. We are working toward deals on those, and it is highly likely that those countries — or trading blocs, as in the case of the EU — who are negotiating in good faith, we will roll the date forward to continue good faith negotiations,' Bessent told the House Ways and Means Committee this week. Trump also suggested he would be open to deadline extensions but said he did not believe it was 'a necessity.' 'We're rocking in terms of deals,' Trump said Wednesday. 'We're dealing with quite a few countries and they all want to make a deal with us.' The president said that letters specifying the terms of trade deals with dozens of countries would be going out in the coming weeks. 'At a certain point, we're just going to send letters out ... saying, 'This is the deal. You can take it, or you can leave it,'' Trump said. 'So at a certain point we'll do that. We're not quite ready.'
Reuters
an hour ago
- Reuters
Investors fearing worst-case Middle East scenarios hunker down
LONDON, June 13 (Reuters) - Investors' worst-case scenario of a full-blown Middle East conflict is coming into view, unleashing a flood of capital out of risk assets and into classic safe-havens, topped once more by the dollar. Israel on Friday said it had launched a strike against nuclear facilities and missile factories in Iran and killed a swathe of military commanders in what could be a prolonged operation to prevent Tehran building an atomic weapon. Oil, which accounts for roughly 30% of global energy demand, soared - gaining almost 14% at one point - along with gold , while government bond yields fell briefly. Shares, near record highs, also declined, led by airlines. "This is a dangerous situation," said Francois Savary, chief investment officer at Genvil Wealth Management in Geneva. "This is one of those situations where everything is under control and then everything is not under control." Iran is one of the world's largest exporters of crude. It also borders the Strait of Hormuz, a critical choke-point through which roughly a fifth of daily global consumption flows and which Iran has previously threatened to close in retaliation to Western pressure. U.S. President Donald Trump suggested Iran, which promised a harsh response, had brought the attack on itself by resisting U.S. demands in talks to restrict its nuclear programme, and urged it to make a deal, "with the next already planned attacks being even more brutal". In markets, focus returned the real-world implications of the flare-up. Investors and central banks alike have been wrestling with the direction of interest rates from here, given the likely upward hit to consumer prices and growth from U.S. tariffs. Friday's strikes by Israel added to that dilemma, given the surge to 5-1/2 month highs in the oil price. U.S. Treasuries struggled to gain much of a safe-haven tailwind, leaving 10-year yields holding steady on the day around 4.36% . The dollar, which for weeks has borne the brunt of investor risk aversion, again took up the mantle of ultimate safe haven. "The dollar is reverting to that traditional role of safe haven, which we haven't seen for months," City Index strategist Fiona Cincotta said. "We've got the equities markets coming lower in the safe-haven, risk-off trade and giving the dollar some much-needed boost from the lows that it was trading at." The S&P 500 (.SPX), opens new tab fell 0.7% in early trade on Friday, but remained near record highs struck in February. The dollar, which is down 10% against a basket of six others this year, has traded virtually in lockstep with stocks since Trump's April 2 "Liberation Day" unveiling of tariffs and subsequent erratic approach to trade policy that has shattered confidence in U.S. assets. That relationship began to erode on Friday, as investors embraced the dollar at the expense of stocks, crypto, industrial commodities and currencies such as the safe-haven Swiss franc and yen. Brent crude oil prices were last up 7% at $75.54 per barrel , were set for their biggest one-day jump since 2022, when energy costs spiked after Russia's invasion of Ukraine. "If we see oil prices moving towards $80 and above then that becomes more of an issue for global central banks," said Chris Scicluna, head of economic research at Daiwa Capital Markets. Marlborough fixed income fund manager James Athey said there was a risk investors may be too quick to take a lack of ratcheting-up in tensions as a green light to dive back into things like stocks. "In general, markets tend to look through these sorts of events quite quickly but of course therein lies the risk of complacency," he said. "The situation is genuinely tense and fraught and risk assets are still priced for perfection," he said.
