What's the best short-term safe investment?

March 21, 2007 8:25 AM

Is the best option for a low-risk, short-term investment a CD? If so, which CD? The amount in question is $10-15,000.

I've come into a sum of money that I would like to make grow until I use it for a down payment on a house when I return to the United States. I'm thinking that a CD is the best option, and I would like the term of investment to be around one year.

My bank's CDs only offer roughly 5 percent interest, so I'm certain I can do better. Any suggestions for the best deals, or other non-CD investment options?

posted by jeffmshaw to Work & Money (11 answers total)

An online savings account such as HSBC, Emigrant Direct, ING, etc will offer a rate that is competitive to a +/-5% rate on a CD. People typically refer people to bankrate.com for current rates. Plus you aren't locking you money up.

Any higher return than that and I imagine you will have to increase your risk (which with these insured savings accounts and the CD is basically nil)
posted by misterbrandt at 8:36 AM on March 21, 2007

*you your
posted by misterbrandt at 8:37 AM on March 21, 2007

With CD rates hovering around 5%, I'd personally recommend an online e-money market account such as AmTrust. They have a 5.36% APY currently. I've had an account with them for a while and I've been quite happy (I switched from ING because of the higher rate) It's easy to make transfers and perform all your account management from online, and since the account is linked to your checking account, you have full access to your money. Plus, the account is FDIC insured.
posted by galimatias at 8:38 AM on March 21, 2007

I opened an Online Savings account with HSBC a few months ago, and it gets something like 5%. I think the minimum was either $1k or $5k.

But either way, it's a good interest rate from a bank with lots of physical branches. Not a terrible deal.
posted by Tacos Are Pretty Great at 8:51 AM on March 21, 2007

I had a CD through my ING Direct savings account. At some point last year, the interest rate on the regular savings account surpassed that of the CD! So maybe not.
posted by mkb at 9:13 AM on March 21, 2007

In my experience, a 6 month CD may get you 0.25-0.5% over an internet savings account at the same bank. For instance, HSBC is 5.05% on savings vs. 5.25% for a CD. Ing is 4.5% savings vs. 5% CD.

I don't think it's worth it given the loss of liquidity.
posted by smackfu at 9:29 AM on March 21, 2007

(CFA but not your CFA chiming in here.)

You're thinking about this the right way. Low-to-no-risk, term-limited investments are the textbook answer to your question. Money market accounts are also worth considering.

One factor nobody's mentioned yet is that an MM account's interest rate will likely vary over the investment period, while with a standard CD you'll be earning a fixed rate. So a CD lets you lock in your return, while putting the money in an MM account means you can end up with more, or less, than a year's worth of interest at the currently-quoted rate.

It all comes down to making a bet on the order of magnitude of a couple hundred bucks or less as to where you think rates will go. If you don't like betting at all, stick with a CD.

Even if you have no foreseeable need for that money before the year is up, emergencies happen. If you go with a CD, be sure to check what the early-withdrawal penalties are - in some cases, you might not only lose interest but part of your principal, so consider that as well as the quoted rate.
posted by Opposite George at 10:08 AM on March 21, 2007

I've been happy with ING's high yield account. YMMV.
posted by craven_morhead at 11:31 AM on March 21, 2007

You can do short-term treasuries, which have a 5%+ interest rate and some tax advantages. Terms on short-term bills are 4 weeks/13 weeks/26 weeks. You can trade them directly -- with very little fuss -- at www.treasurydirect.gov.
posted by cgs06 at 11:56 AM on March 21, 2007

I use GMAC Bank (gmacbank.com) for my money market. Like ING or HSBC or all the others, it gives 5+ percent. You are fully liquid, and can hook it up directly to your checking account at a brick-and-mortar bank for easy online transfer back and forth. Free checks, no foreign ATM fee, and reimbursement of foreign ATM fees levied by other banks of up to $6 (that's generally three or four ATM visits) per month.

GMAC has been great, and like others have said the marginally higher CD rates aren't worth the liquidity tradeoff for us.
posted by AgentRocket at 11:59 AM on March 21, 2007

Our own (ever timely) jdroth just posted an article entitled "Which Online High-Yield Savings Account is Best?" over at GRS.
posted by misterbrandt at 2:36 PM on March 21, 2007