If you like many Americans have a lump sum of cash but cannot or are not willing to invest it into a long term investment, there are options for you besides dumping it into traditional savings accounts, which yield very little in the way of interest. If you need the ability to liquid or have access to your money anywhere from 6 months from now to less than 5 years from now, there are several short term investments you can make to make a higher yield than a traditional bank or credit union savings account. When considering the right short term investment for yourself you need to ask these questions:

* When do I need my money back? Investments should be for a minimum of five years and ideally ten plus years, anything less than 5 years will yield little back in most cases, unless you get lucky with a hot stock.

* Do I want investments I can liquidate quickly in the case of emergency? Some investments carry a penalty for an early withdrawal.

* How much risk can I handle? This question is key as most investments do carry a risk, with the exception of a few such as government bonds, although investments with no to little risk carry very little in the way of a reward.

Many Financeil Advisors Agree, If Used Correctly Credit Cards Are A Good Way To Balance Cash Flow For Maintaining Short Term Investments

Short Term Investments:

If you have extra money laying around but cannot commit to an investment of 5 to 10 years plus, you do have options these days for getting some extra money. Online savings accounts offer interest at around 1%. This pays more interest than traditional brick and motor banks, and offers the best returns on savings accounts among all financial institutions. The 1% interest returns compare to those of certificates of deposit, but without the early withdrawal penalty. While 1% is not much, it does offer you a return while your money sits waiting to be used or invested elsewhere.

Certificate of Deposit

These can be good if you cannot, or will not vest your money into a long-term investment of 5 years or longer. You can pick a maturity date that matches your time frame more closely. The interest rate for these is a bit more than an online savings account, and the investment is insured by the Federal Deposit Insurance Corporation (FDIC) for banks and by the National Credit Union Administration (NCUA) for credit unions. However you cannot withdraw the money for a predetermined period of time without paying a early withdrawal penalty. The length of time for these can be often monthly, three months, six months, or one to five years. Cds interest rates tend to be fixed interest rates, although you can sometimes find ones with a variable interest rate, although variable interest rate CDs are not common. Smaller financial institutions tend to offer higher interest rates on CDs than the larger ones. Early withdrawal can result in a hefty penalty. The problem with CDs is that often, especially when the economy goes sour, the CDs do not keep up with the rate of inflation, so while it may seem you are gaining money, in fact you may be losing it due to inflation.

Money Market Accounts

These are similar to savings accounts offered by banks and credit unions, the differences however being that they pay a higher interest rate and do allow some withdrawals. They do however have much higher minimum balance requirements, often as much as $1000.00 to $2500.00 minimum to open a money market account. They allow anywhere from three to six withdrawals per month, so if you have a relatively large amount amount of excess money around, need the ability to liquidate the account for emergencies or a higher yielding long term investment at a time of your choosing, a money market account may be the answer you are looking for . These accounts also let you write up to three checks per month. ATM, teller, and bank-by-mail transactions are not counted towards these totals. Ally at the present time has an Annual Percentage Yield (APY) of 0.85 % while Wells Fargo for example has an APR of merely 0.03%, with the two rates given as an example, they are accurate as of 8/12/2014, however one should keep in mind the rate is variable and fees can reduce earnings. Money Markets are currently paying a higher APY than CD’s, however this may change at any time. if at any time CDs start to yield a higher return you can simply withdraw your funds from the money market account and use that to fund a CD without paying a penalty for early withdrawal.

Roth IRA
Ok most will not see this as a short term investment but let me explain why it can be. Since Roth IRAs are paid with after tax income, you can withdraw from these accounts at will if times get tough or if you need to invent the money elsewhere. You cannot do this with 401ks or with traditional IRAs, as an early withdrawal results in stiff penalty’s. You can withdraw the amount you deposited early, but not the earnings you made on those contributions. This allows you to save some for retirement down the road, but free access to your funds at any time. These allow you access to higher yielding investments that can be short term such as mutual funds, ETFs, and bonds. The trade off is you are taking a higher amount of risk with mutual funds, ETFs, and bonds for a higher rate of return. You also miss out on FDIC coverage.

Short Term Bond Funds and ETFs
These are managed by a professional adviser. While these bonds are not as stable as CDs and Money Market Accounts, they stand the chance at a higher return or yield on your investment. Bonds fluctuate with the market and their yield will depend on market conditions in variable monthly payments. Short term bonds usually mature in 2 years or less. Services like E*Trade and Scottrade allow you to trade in bond funds and ETFs.