Pros and Cons to short term investments

There are many pros and cons to short term investments. If you are considering in making some investments you might want to consider some of the pros and cons to short term investments before you make any permanent decisions. Here are some short term investments to consider and pros and cons for each.

Pros and Cons to using a checking account as a short term investment
Pros:


• Checking accounts are extremely liquid. You can give and take as freely as you like.


•  It is easy to open a checking account as long as you have money


•  It's a good place to store your cash, especially if you're just starting out in the business world.


•  You can easily take money out if needed from an ATM machine and can also be used for paying bills.

Cons:


• With little to no interest on these accounts it is unlikely that you will ever make any money with this type of short term investment.

Pros and Cons to using a savings account as a short term investment
Pros:


• Savings accounts provide a higher rate of return than a checking account will.


•  Savings accounts are a good place to keep the money you are saving and holding onto for a long term investment option.


•  Savings accounts are extremely convenient for writing and depositing checks and accessing your money quickly.

Cons:


• If you are trying to find an investment that will give you a high return a savings account will not do this for you.

Pros and Cons to using a Money Market Fund as a short term investment
Pros:


• Money Market Funds are fairly inexpensive


•  Interest is compounded daily or weekly


•  Money market funds are very convenient and flexible in terms of the cash equivalents


•  Depending on what type of money market fund you get, it can have lower fees and pay higher interest.


•  Shares can be redeemed by telephone or mail


•  Money market funds are extremely liquid; you can take the money out if need be.

Cons:


• Although money market funds are fairly liquid you may incur fees or penalty charges if you take the money out before it matures.


•  You may also be limited to the number of check you write in a given period.


•  The money in a money market fund is not insured

Pros and Cons to using Certificates of Deposit as a short term investment
Pros:


• Certificates of deposits allow in some instances early withdrawals if needed with no interest penalty. Those instances include death, adjudication of incompetence, or disability.


•  There is a low minimum investment of only $1000 to gain access to the national CD market


•  It is extremely easy to reinvest your principal investment


•  Certificates of deposit offer a higher return than other short term investment options

Cons:


• The biggest disadvantage to investing in a certificate of deposit is that once you have invested your money in them you are not allowed to touch the invested money. Taking the money out before its maturity period will incur heavy penalties.


•  Since the interest rate is fixed, you are more likely to bear interest rate risk.

We have only touched the surface of different types of short term investments and their pros and cons. Any time you invest money into something there will always be an advantage and a disadvantage. The trick is finding the best investment for you that will offer you the most advantage in the business world.