(Disclosure: Some of the links below may be affiliate links)
The stock market is an easy answer when investing for the long term. It provides excellent average returns. However, in the shorter term, the risks of loss are high. Therefore, the stock market is not an excellent short-term investment.
So, what should you do with your money if you know you will need the money in the next few years? There are a few short-term investments that are available.
In this article, I want to discuss what you can do with your money in the short term. I also list the most common short-term investments.
When discussing short-term investments, I discuss any time below five years. If you know you will need the money before five years, you should be careful about where you put your money.
Indeed, putting your money in the stock market is not an excellent idea for such a term. The chances of losing money over five years are pretty high. You have to be careful even for the medium term (5 to 10 years).
When searching for a short-term investment, people should generally look for the following things:
- Liquidity of the investment: Is it difficult to take the money out?
- Limited risks.
- Some returns.
In general, people want to maximize their returns. But short-term returns are significantly lower than long-term returns. Also, people have to be careful about risks. If you know you will need the money, having the money available is more important than the returns you can get.
Here are a few examples with short-term horizons:
- You will soon buy a house and need cash for the downpayment.
- You will soon move to another country.
- You are waiting for a good buying opportunity on something.
In these cases, you may want to ensure your money is available but still yield some returns.
1. Checking accounts
I thought I would start with checking accounts quickly. They are probably not a great short-term investment since they have no interest rate.
However, checking accounts have one significant advantage. Checking accounts can be withdrawn at any time. So, a checking account may be a good candidate if you need very high flexibility for your money.
And there is another advantage, you probably already have a good checking account since this is where your salary goes. And if you do not, you can look at the best Swiss banks.
2. Saving accounts
Savings accounts are the simplest place to put your money in the short term.
Until late 2022, savings accounts in Switzerland yielded a 0% interest rate. But things have changed with the return of inflation. These days, you can find savings accounts with good interest rates.
If you already use a bank account, I encourage you to check their savings accounts. You may be surprised to find that you can now get some returns on your savings.
If you are looking for a savings account, you need to look out for the following:
- The conditions for withdrawals
- The interest rate
Since you will need that money at some point, you must ensure you can withdraw it. Savings accounts are sometimes very strict about when and how much money you can withdraw.
And if you do not respect these strict rules, there are severe penalties. So, optimizing your interest rate only to pay a penalty because you did not read the rules properly is pointless.
While it is great to optimize the interest rate, you have to be especially careful about a few things. First, many accounts have special offers only for a year. Since you do not want to switch accounts yearly, consider the average interest rate over your term.
Also, many accounts only pay interest up to a maximum amount or have different conditions based on how much money you will put in the account. Some banks even only offer interest on money from other banks to convert customers. So, you need to be careful about the conditions.
You should also be careful that interest rates change constantly. If the Swiss National Bank (SNB) lowers the interest rate, banks will also lower them. And if it increases, banks will also increase it. But this is a slow process. Swiss banks are slow to adapt their interest rate.
So, the best savings account is always different. While interest rates rise, you can expect the best savings account to change weekly. I would recommend you pick one and stick to it unless conditions degrade.
As of July 9th, 2023, here are the five accounts with the best interest rate I could find:
- Liechtensteinische Landesbank(LLB) (wiLLBe account) with 1.55% up to 50’000 CHF, 1.25% up to 100’000 CHF, 0.25% after 100’000 CHF.
- BSU Bank with 1.36% up to 25’000 CHF, 1.11% up to 100’000 CHF, 0.50% up to 200’000 CHF and 0% after that.
- Cembra with 1.25% up to one million CHF.
- CA next bank with 1.25% up to 50’000 CHF, 1% up to 100’000 CHF, 0.75% up to 200’000 CHF, and 0.25% after that.
- Kontomat with a 1% interest rate
The conditions for the interest rate for these accounts are very different. The LLB account is fine for small amounts but not great if you have more than 100’000 CHF. So, you must look for your amount to see what is best.
Since it is my favorite bank, I would also like to mention Neon, which now offers 0.9% interest up to 25’000 CHF and 0.65% after. However, this interest rate is only valid in Spaces. I have moved my emergency fund to Neon with this new interest rate.
To help you find the best saving account, you can use the comparator from Moneyland.
Savings accounts are a good short-term investment. The problem is that they change often, and their conditions differ from one account to another. You have to be careful about the conditions of the different accounts to be sure you can withdraw the money when you need it.
3. Broker accounts
Another place very similar to a savings account is a broker account, as cash. You can store cash with your broker. Many brokers offer no interest rate on the cash, but some brokers do, and it can be interesting to store your money there.
The restrictions are usually simpler than for a savings account. This can make it even better than a savings account for that. And if you are waiting for an opportunity on the stock market, your money is ready where you need it.
I do not know of any comparator for these brokers. It looks like Swiss brokers are poor at that. As of July 9th, 2023, Swissquote was still at a 0% interest rate.
On the other hand, Interactive Brokers was at 1.156% for CHF over 10’000 CHF. Interestingly, there is no maximum amount. So, this could be interesting for large amounts of money. There are also no restrictions. You can invest the money whenever you want.
It is important to note that IB will change its interest rate very quickly based on the federal rates. For instance, less than a month later (on August 6th, 2023), the rate went down to 0.726%.
Broker accounts are quite similar to bank accounts. They can be a good alternative if you already have an account with a broker with a good interest rate.
4. Fixed Deposits
Fixed Deposits (or money market accounts) are special short-term bank accounts with a higher interest rate with a fixed duration. They have a short duration, usually from 1 month to 12 months.
Most banks have a high minimum for these accounts. It is not uncommon for this minimum to be around 100’000 CHF. So, it may be difficult to qualify for these accounts.
These accounts are interesting in that you can conclude them for a very short term. So, if you want to have your money available in 6 months, you can conclude a six months fixed deposit account, and you will get some guaranteed interest rate on it. Regardless of the amount, you will not have any issue to withdraw after the term.
Be careful, though, that no withdrawal is possible during the term. You have to wait until the end of the contract. So, these accounts are not flexible. But the fact that they can be concluded for a short period is interesting.
I have not found a comparator for these fixed deposit accounts. So, if you are interested, you will have to shop around on the websites of the different banks or call them. Some of the banks do not publish their interest rate online.
As an example, here are the interest rates for fixed deposits at Migros Bank as of July 9th, 2023:
- 1 month: 1.19% per annum
- 3 months: 1.23% per annum
- 6 months: 1.32% per annum
- 9 months: 1.40% per annum
- 12 months: 1.45% per annum
While these numbers are not very high, they are still much better than the interest rate on Migros Bank’s standard bank accounts, which still sit at 0% at the same time.
These fixed deposits can be quite interesting if you have a large amount of money and a very short-term horizon.
5. Medium-Term Notes
Medium-Term Notes (or Certificates of Deposit) are bonds issued by banks. Most large banks in Switzerland emit bonds for 1 to 10 years. They are one of the most used short-term investments.
Each of these notes has a yearly interest rate and a duration. Each year, you will receive the interest on your principal. And at the end of the duration, you will receive the principal back.
The interest rate is fixed and cannot change for the bond’s duration. If the SNB raises or lowers its interest rate, the bank will not change it.
Medium-term notes are not flexible. You cannot get back the principal before the end of the duration. So, you need to know your investment horizon before buying a medium-term note.
As an example, here are the best interest rates for 3-year medium-term notes as of July 9th, 2023:
- Cembra, with 2.1%
- Baloise, with 1.7%
- BPS Suisse, with 1.7
- Clientis Biene Bank, with 1.7%
- Regiobank, with 1.6%
These numbers are higher than what we have seen with savings accounts. However, they are not much higher for small amounts. If you have a large amount, medium-term notes are great short-term investments. But for smaller amounts, they only have a slight increase in interest rate, and they are much less flexible for withdrawals.
If you are interested in searching for medium-term notes, you can use the comparator from Moneyland.
Short-Term Investments Conclusion
A few good short-term investments are available when you know you will need the money in the next few months or years.
If you know you will need the money, you should be careful that the money is available when you need it. It is essential because many people only optimize returns and are in trouble when the money is needed.
This is why the stock market is not a good short-term investment. Even bond ETFs can have wide swings in value in the short term. So, I would not recommend anything on the stock market for such a short time.
I would also not recommend anything with a currency risk. If you need CHF in the short term, keep a short-term investment in CHF.
So, returns should only be optimized after considering the availability of the money. I would keep short-term money in a savings account or a broker account.
Did I miss any good short-term investments? Where do you keep your short-term money?
Download this e-book and optimize your finances and save money by using the best financial services available in Switzerland!Download The FREE e-book
- More articles about Investing Fundamentals
- More articles about Investing
- What is Currency Inflation? How to Fight it?
- Why do we need to invest?
- Who is Warren Buffett ? The Man and His Investments