top of page

Good Short-Term Investment Options

(Options such as CDs, bonds & treasury bills)

Investing is key to your financial success, both in the short-term and long-term. While investing is a long term play, there are many instances in which short term investments make sense, such as when saving up for a down payment, practice buy-in, or other major expense, but wanting your money to work for you in the interim.  Additionally, in more recent times of higher inflation, economic uncertainty, and higher interest rates, many members of our physician online communities like the often safer and relatively high yield options offered by outlets such as high yield savings accounts, certificates of deposit, or treasury bonds . Below, we cover some short-term investing options. It is by no means a comprehensive, all-inclusive list, but it's aimed to cover the pros and cons of some of the most popular options.

 

As always, make sure to do your own research. You should never invest in any you don't fully understand for yourself. And, if you don't already, follow us on Instagram @physiciansidegigs, where we regularly post about personal finance and investing, so you can learn a little daily.

Quick Links

Disclosure: This page contains information about our sponsors, as well as affiliate links, which support the group at no cost to you. These should be viewed as introductions rather than formal recommendations - please do your own due diligence before making decisions based on this page. We are not formal financial, legal, or otherwise licensed professionals, and you should consult these as appropriate. To learn more, visit our disclaimers and disclosures.

Resources

SoFi High-Yield Savings Account

  • Up to 4.60% APY*: Members with direct deposit can earn 4.60% APY on their savings
    and Vaults balances, and 0.50% APY on their checking balances.

  • Your money is FDIC insured. Plus, you can access additional insurance up to $2M on
    deposits through a seamless network of participating banks.

  • No account fees. No overdraft fees. No minimum balance fees. No monthly fees.

  • Get up to a $300 bonus.*: Start your savings off right. Collect a bank account bonus of
    $50 to $300 cash using our affiliate link, depending on your direct deposit amount.

*Terms and conditions apply at sofi.com/physiciansidegigs.

Wealthfront High-Yield Cash Account ​

  • High-yield cash account with no account fees and unlimited fee-free withdrawals and transfers

  • No minimum or maximum balance restrictions on APY

  • Up to $8M FDIC insurance through partner banks ($16M for joint accounts)

  • Through our affiliate link, Physician Side Gigs readers earn $60 for depositing at least $25,000, $125 for depositing at least $50,000, $250 for depositing at least $100,000 or $625 for depositing at least $250,000 when you open a Cash Account as a first-time Wealthfront customer and make a qualifying deposit within 30 days. The tiered incentive is for individual cash accounts only; joint accounts and trust accounts do not qualify. Your bonus tier is determined by the net deposits made across all your Wealthfront accounts within the first 30 days after opening a Cash Account, minus any withdrawals.

*Terms and conditions apply.  All products subject to approval.

Introduction

Unpredictable and volatile markets often leave investors trigger shy when it comes to investing. While investing during down markets can be a great way to capitalize on future gains, there are several reasons to have cash available on hand, especially for high-income earners such as physicians. For example:

Below, we cover some short-term investment options and the pros and cons of each, as well as which of the above scenarios (and others) each investment type might be a good for.

Remember, asset allocation is important, especially in recent times of higher interest rates. If you money isn't growing, you're losing buying power to inflation! Fear of the market and use of these short-term investments over long time periods for large parts of your investing portfolio can greatly reduce your overall weather generating ability.

If you are new to investing and want better ideas for long-term investing options, make sure to check out our investing for physicians page for information and resources.

When choosing a short-term investment option, here are different questions to consider when making your decision on where to park your money:

  • Is it insured?

  • What is the current interest rate?

  • ​How long is your money tied up before you can access it without penalty?​

  • How difficult is it to invest or withdrawal money from the investment?

  • Are there any fees?

What Counts As Short Term?

The time range depends on your specific savings goal. Generally short-term can be considered anything under two or three years. When looking at large purchases (such as real estate), this can stretch up to around five years. If you have over a five year time horizon, you can generally ride the natural economic waves of the market and get better average returns overall.

Certain savings, such as your emergency fund, should by definition last longer than five years, with the balancing changing in short term time frames as you need to dip into it for, well, emergencies, and to add to it as your expenses and lifestyle grow. In this case, one of the options below might be a good long term solution over the years (though it never hurts to compare going rates and make sure it's still a good deal). Common sense can guide you, just make sure you don't rely heavily on short-term investments as a long-term overall strategy for your investing portfolio.

Cash Management Accounts

A cash management account (sometimes referred to as a high-yield cash account) is a cash account offered by a non-banking financial institution that provides significantly higher interest rate returns than a standard savings account. They have similar account structures to savings accounts offered by banking institutions, although they can have different transaction and transfer rules and restrictions. Since the non-banking institution does not directly provide FDIC insurance but can partner with FDIC insured banks, you may be able to get higher FDIC coverage than with having a single account directly with a banking institution (be sure to check before signing up).

 

Interest earned in a cash management account is ordinary income taxed as ordinary income at your marginal tax rate.

 

Cash management accounts versus high-yield savings accounts

Good Fit For:

A cash management account can be a great place to park your emergency fund or savings funds for upcoming large, planned purchases. Just make sure when selecting a cash management account, you understand the transaction and transfer restrictions on your account (and the FDIC insurance coverage). Some are very restrictive while others offer unlimited fee-free transactions.

Resource:

Wealthfront High-Yield Cash Account ​

  • High-yield cash account with no account fees and unlimited fee-free withdrawals and transfers

  • No minimum or maximum balance restrictions on APY

  • Up to $8M FDIC insurance through partner banks ($16M for joint accounts)

  • Through our affiliate link, Physician Side Gigs readers earn $60 for depositing at least $25,000, $125 for depositing at least $50,000, $250 for depositing at least $100,000 or $625 for depositing at least $250,000 when you open a Cash Account as a first-time Wealthfront customer and make a qualifying deposit within 30 days. The tiered incentive is for individual cash accounts only; joint accounts and trust accounts do not qualify. Your bonus tier is determined by the net deposits made across all your Wealthfront accounts within the first 30 days after opening a Cash Account, minus any withdrawals.

*Terms and conditions apply.  All products subject to approval.

Certificates of Deposit (CDs)

A certificates of deposit (CD) is a time deposit sold by banks and credit unions. It has a specific, fixed term before your money can be withdrawn without penalty. CDs are available with terms as short as three months for short-term investing, though interest rates typically increase as you increase the maturity length.

CDs are taxed as ordinary income at your marginal tax rate.

Pros and cons of certificates of deposit (CDs)

Good Fit For:

A CD is good for a specific short-term savings goal with a defined timeline in the next year or two, such as money earmarked for a big family vacation or special anniversary trip late next year.

Corporate Bond Funds

A corporate bond fund is a fund made of a collection of bonds issued by major corporations to raise funds and to fund their investments. Of the short-term investments covered, they could be considered the riskiest option for your short-term investing needs, as they are not ensured by any government entity and are susceptible to market fluctuations. By selection a bond fund, however, you have diversified within the fund itself, which is comprised of several different corporate bonds, making it a less risky investment option than single stocks for example.

Tax structure for corporate bond funds are a little more complicated than the other short-term investments we cover. The interest earned is taxed at your marginal tax rate. Capital gains on the funds are only assessed when the fund is sold. Short-term (a year or less by this definition) capital gains are taxed at your marginal tax rate. Long-term capital gains have their own tax brackets (0%, 15%, or 20%), depending on your income level.

Pros and cons of corporate bond funds

Good Fit For:

Corporate bond funds offers diversification across multiple bonds without having to research and purchase them individually. It's not a perfect comparison, but corporate bond funds are similar to index funds versus single stocks, but unlike index funds, they generally offer steady cash flow. Like municipal bonds below, they can help with asset allocation in your overall investing portfolio.

High-Yield Savings Accounts (HYSAs)

A high-yield savings account is a type of savings account that offers significantly higher interest rate returns than a standard savings account but may come with more limitations, such as transaction limits.

Interest earned in your HYSA is ordinary income taxed at your marginal tax rate.

Pros and cons of high-yield savings accounts (HYSA)

Good Fit For:

A HYSA is a great place to park your emergency fund. As an added bonus, setting up a HYSA at a different institution from your primary checking is a great way to help keep you from pulling from your emergency fund for non-emergency expenses such as a new car purchase or home renovations.

Speaking of new cars and home renovs, HYSAs are great for them too! It's a great investment vehicle to help you save up for large, planned upcoming expenses. Just make sure when selecting a HYSA, you understand the transaction and transfer restrictions on your account. A HYSA is not a good fit for your particular situation if you can't get the total amount of funds out when you need them.

Resource:

SoFi High-Yield Savings Account

  • Up to 4.60% APY*: Members with direct deposit can earn 4.60% APY on their savings
    and Vaults balances, and 0.50% APY on their checking balances.

  • Your money is FDIC insured. Plus, you can access additional insurance up to $2M on
    deposits through a seamless network of participating banks.

  • No account fees. No overdraft fees. No minimum balance fees. No monthly fees.

  • Get up to a $300 bonus.*: Start your savings off right. Collect a bank account bonus of
    $50 to $300 cash using our affiliate link, depending on your direct deposit amount.

*Terms and conditions apply at sofi.com/physiciansidegigs.

Money Market Funds

Money market funds are a kind of mutual fund that primarily invests in high liquid assets with low risk such as cash, cash equivalents, and high-quality, short-term debt securities. 

The interest you earn with money market funds is ordinary income taxed at your marginal tax rate, though there can be some tax savings for money market funds that include federal and state bonds.

 

While similar in name to a money marker account (below), they are not the same investment type. Money market funds are an investment account that is typically available through firms such as Vanguard and Fidelity, or through your brokerage account with your financial advisor. They are not FDIC insured, though are generally safe because of the low-risk assets they're invested in. Money market accounts are a type of savings account available through a bank or credit union.

Good Fit For:

They can be great for short-term savings goals (such as a house down payment) and money targeted for future investing goals, where you want security and don't need immediate liquidity.

 

Comparison: Money Market Funds vs HYSA 

Money Market Funds vs HYSA.jpg

Money Market Accounts (MMAs)

Money market accounts are higher interest deposit accounts offered by financial institutions such as banks and credit unions.

The interest you earn with your money market account is ordinary income taxed at your marginal tax rate.

Pros and cons of money market accounts

Good Fit For:

They can be great for general savings and emergency funds, where you want security and aren't worried as much about inflation. Along with check writing, many money market accounts offer debit cards (or both!), which gives you greater flexibility and ease of assess than most short-term investment options. Just make sure you pay attention to the account minimum requirements and any fees and limits associated with these features. Many MMAs limit the number of transactions per month or have a separate process to withdraw funds, which may be less than ideal for a primary account.

 

Comparison: Money Market Funds vs Money Market Accounts (MMAs)

There is often confusion between Money Market Funds and Money Market Accounts - there are several key distinctions here. A money market account is typically through a bank or credit union, while a money market fund is through a brokerage or similar. This has important implications as demonstrated below.

Money Market Funds vs. Accounts.jpg

Municipal Bonds (Munis)

Municipal bonds are issued by local, state, or other non-federal government agency to finance public projects. Since they are backed by local entities instead of the federal government, they are higher risk than treasury bills (see below). They are one of the lesser used short-term investments as they offer lower liquidity than some of the other options we've covered and require more research to try to minimize risk.

As mentioned in the graphic below, income generated from municipal bonds is generally exempt from federal taxes. It is also usually tax-exempt in the state where the bond is issued.

Muni.jpg

Good Fit For:

While municipal bonds wouldn't be our first recommendation for short-term investment, they do have a place on this list! Since they have a low correlation with other types of assets (bonds, stocks, etc.), they can help diversify a portfolio while generating steady income. Investing 101 teaches your not to leave all your wealth in one bucket, and municipal bonds can help round out your asset allocation, especially in times of higher economic uncertainty.

Treasury Bills (T-Bills)

Treasury bills are short-term debt securities the government issues, typically via the national treasury or central bank, to raise funds. They can be purchased directly from the Treasury or from a bank, broker, or dealer that sells individual bonds. While they aren't FDIC insured, they are backed by the federal government, and if that collapses, we have bigger problems than our short-term investments!

Unlike municipal bonds, treasury bills are unfortunately not tax exempt at the federal level. The interest income is subject to income tax at your marginal tax rate. But, treasury bills are exempt from all state and local income taxes.

Pros and cons of treasury bills

Good Fit For:

If you've recently sold a large asset or are saving up short-term for a large asset, such as a house or rental property, and know you don't need the funds for a set time, a treasury bill can offer security for the entire amount versus the hassle of having to open multiple accounts at different institutions to stay within FDIC limits.

bottom of page