Finding the best short-term savings accounts: Using CDs to invest your cash
Key takeaways
Certificates of deposit offer predictable returns and fixed terms, making them a suitable option for short-term investments when you know when you’ll need the money.
CDs provide FDIC insurance and guaranteed interest when held to maturity, but limited liquidity and early withdrawal penalties mean they’re best used for funds you won’t need unexpectedly.
Selecting shorter terms, no-penalty CDs, or using a CD ladder can help balance higher interest earnings with access to cash for near-term needs.
Short-term investments can be key building blocks to financial stability and growth. Understanding what makes the best short-term investment can help you make the decisions you need to secure your financial future.
This is where short-term savings accounts and certificates of deposit come into play. These deposit products allow short-term investors to grow their cash with relatively minimal risk, making them potentially one of the best short-term investments savers can make.
However, guaranteeing returns over the short-term can allow for better financial planning. Short-term certificates of deposit, also known as CDs, can be a great way to secure an interest rate for a fixed period of time, offering an alternative to either the paltry interest rates offered on traditional savings accounts or the variable rates of high-yield savings accounts.
The trade-off, of course, being that CDs are considered less liquid than other types of savings products. If you need to access funds prior to the CD’s maturity date, you may be subject to early withdrawal penalties which can vary based on a specific product’s terms.
With more limited access to funds, does it make sense to use CDs as a short-term investment to grow your savings?
What is a certificate of deposit?
A CD account is a way to lock in a fixed interest rate for a fixed period of time. Generally, they are considered a safe, low-risk vehicle to earn passive income, with the caveat that funds are typically not accessible prior to the CD’s maturity date without an early withdrawal penalty fee.
What are the best short-term savings accounts?
When it comes to short-term investing, savings accounts and certificates of deposits can be a relatively safe option to grow funds.
For high-yield savings accounts or money market deposit accounts, funds grow at a variable rate that can change over time and can typically be accessed whenever you need them. For certificates of deposit, funds grow at a fixed rate for a pre-set period of time during which funds cannot be accessed without paying an early withdrawal penalty.
Where is the best place to put money for short-term savings?
The best short-term investment varies from person to person for a variety of reasons, with risk tolerance typically being a major factor.
While returns from investments like stocks and bonds can be higher than those from deposit products, risk of loss can be greater which is why these may make more sense for longer-term savings.
For short-term investments with lower risk, investors can look to high-yield savings accounts, money market deposit accounts, and certificates of deposit for steady returns. In the case of CDs, you also can benefit from predictable returns with an interest rate fixed for the CD’s entire term — something most other investments cannot guarantee. If you know you won’t need funds for a certain period of time, locking in a rate with a CD that aligns with that time horizon could make it the best short-term savings account for those funds.
As an example, if it were December and you had money set aside for a summer vacation fund, you could put those funds in a six-month high-yield CD. They would then grow at a fixed rate for that entire term and would mature the following June — giving you some extra money to spend just in time for that well-deserved getaway.
Short-term investing: How to use CDs to grow your savings
While funds in CDs are typically considered less liquid than funds held in a high-yield savings account, there are ways to use them to your benefit when it comes to growing short-term investing.
1. Consider shorter-term CDs
The ability to lock in an interest rate can be advantageous when it comes to growing your savings when interest rates are falling. Where funds in a high-yield savings account are typically subject to rate increases or decreases, funds held in a CD will continue to earn the same interest rate throughout the CD’s term.
If interest rates are dropping, locking in a top rate on a CD today could prove to be a profitable decision. If you’re concerned about accessing your cash, such as with an emergency fund or rainy day fund where you never know when you may need it, consider a shorter-term CD.
On the Raisin platform, it’s easy to find CDs with terms as short as one or three months. Keeping funds in shorter-term CDs can allow you to not have to worry about rate variations during each term. Plus, if you set them to renew automatically, you can have an experience similar to a short-term savings account without concerns about rates changing in the middle of your term.
And, if you think you’ll need funds at the end of your term, it’s always easy to update your CD’s maturity plan to withdraw at maturity and you’ll be able to access all of your funds without paying any penalty fees.
2. Build a CD ladder for the best of both worlds
CD ladders are a flexible savings strategy that can allow you to lock in rates at terms of various lengths so that you always have funds approaching maturity. By spreading cash equally across CDs of varying rates, you can potentially reduce the risk of locking in a lower rate if rates increase during your term. It also allows you to customize your strategy so that funds are always approaching maturity — and will be either able to be reinvested or accessible without paying penalty fees.
Here’s how this could look for short-term savings: if you have $60,000 saved up that you want to keep growing with CDs, you could use your no-fee Raisin login to deposit $20,000 each into CDs of three-, six, and nine-month terms. As each CD matures, you would want to replace it with a CD “rung” that is farthest away. So, when your first CD matures after three months, you could choose to either cash out or reinvest into a new nine-month CD.
This way, you’ll always have funds maturing within the next three months or less.
Concerned you may need funds even sooner? You could do the same with CDs of one-, two-, and three-month terms so your funds would never be more than 30 days away from liquidity.
3. Deposit smaller amounts across multiple CDs
Another trick for growing short-term savings is to open multiple CDs. The Raisin platform allows savers to find, fund, and manage savings products from over 65 banks and credit unions all from a single account — all with just $1 minimum deposit and no ongoing balance minimums or hidden fees.
This means that it’s simple to use a Raisin login to fund a range of CDs without needing to keep track of multiple passwords. For instance, if you have $10,000 in short-term savings, you could consider breaking it up into 10 CDs at $1,000 a piece or even 20 CDs at $500 apiece. Because there are no hidden fees, all it would take is just a few extra clicks.
By breaking up your funds in this way, you would be able to access just a portion of your savings in case of emergency — without breaking a large CD. This could help reduce potential early withdrawal penalties and could prevent lost interest potential on a large sum of money when you only need a portion for an unexpected bill.
4. Consider no-penalty CDs
If paying a withdrawal penalty, even if it's just a few months’ worth of interest, is a dealbreaker for you but you’re concerned about the variable rates offered on high-yield savings accounts, a no-penalty CD may be the perfect option.
What is a no-penalty CD? Think of it as a certificate of deposit with no penalty fees for early withdrawal. While no-penalty CD rates may be lower than those offered on high-yield CDs, the ability to access funds without paying a fee may be worth the trade-off.
Start your short-term investing journey with Raisin
Looking for the best short-term savings accounts to grow your funds? The Raisin platform allows you to access certificates of deposit of varying term lengths and savings accounts from an exclusive network of federally regulated banks and credit unions. Find, fund, and manage as many products as you’d like — all from a single no-fee login.
Click below to view all of the current offers on the platform and get started in as little as a few minutes.
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