Investing is an important tool to protect money while allowing money to earn interest. Short-term investments are generally investments which mature in one year or less. If an investment matures after one year, it is generally considered a long-term investment. Short-term investing is a good idea when people want to earn interest on their money while still allowing the investment to be turned back in to cash relatively quickly. This is beneficial especially want to keep an emergency expense fund, for example if a person needed emergency surgery, by investing in short-term investments, they would be able to convert the investment quickly back to cash to pay for the emergency procedure.
Savings account provide low interest rates but are federally insured by the FDIC. Money is usually easy to move out from a savings account.
High-Yield Bank Accounts
High-yield bank accounts offer high interest rates, usually well above savings account interest rates, and are federally insured. High-yield bank accounts normally require large initial deposits and bank balances and allows only limited transactions.
Money Market Bank Accounts
Money market bank accounts allow banks to pool many depositors' accounts to purchase investments from governments, financial institutions and large corporations. Money market accounts offer more interest than a savings account but less interest than a certificate of deposit. Unlike a CD, money market accounts allow money to be withdrawn without penalty. Depending on where the money market account originates, some banks will charge fees on transactions in the account. Money market accounts are federally insured.
Certificate of Deposit
Certificates of deposit provide high-interest rates but do not allow withdrawing from the account. An investor invests a certain amount of money and promises not to withdraw the money for a certain time period. If he withdraws the money early, he gets a penalty. Because of the promise not to withdraw the money, CDs offer higher interest rates. CDs are also federally insured.
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