Where To Invest If You Need Your Money in a Year

Hand of male or female putting coins in jar with money stack step growing growth saving money, Concept finance business investment - Image.
Monster Ztudio / Shutterstock.com

Whether you’re saving up for a down payment on a home or a dream vacation abroad next year, you’ll need someplace safe to keep that money until you need it. And if that money can earn a return, even better.

“Unfortunately, there aren’t many good options in the current environment for a one-year investment,” said Matthew Jenkins, a CFA and CFP.

Find Out: The 5 Fastest Ways To Become Rich, According To Experts
Keep Reading: 6 Top Tips for How To Turn $1,000 Into $10,000

On one hand, the stock market is too volatile for short-term savings. Though the S&P 500 has returned an average of 10% annually over the past 100 or so years, there’s too great of a chance that the market could be down for the year you have your money in it. (So far, 2022 has proven to be particularly tumultuous.) Plus, even if you did earn a positive return, you’d need to pay capital gains taxes on the profit when you sold.

Building Wealth

Unfortunately, keeping your money in the bank won’t help it grow much. Interest rates are also extremely low at the moment. The Federal Reserve has kept its target rate at near-zero in the wake of the pandemic in order to stimulate economic growth. That said, it is expected to raise rates in 2022, which could help boost earnings on deposit accounts.

See: How To Compound Your Income in 2022

Where To Safely Save Your Money 

“When investing for the short-term, you need to focus on protecting what you already have,” Jenkins said. That means putting your money in an account that won’t lose any principal. The interest earnings will likely be minimal, but there are some options that can help you eke out a higher return.

Advice: 12 Essential Money Tips for Every Phase of Your Financial Life

High-Yield Savings Account

For many, the best choice for money that’s needed in a year could be a high-yield savings account, Jenkins said. These work the same as traditional savings accounts, but the interest rates are about 10 to 20 times the national average. The best rates are often found at online banks, which have fewer overhead costs and pass those savings on to customers. 

For example, the average savings account rate is just 0.06% right now, while some of the highest-yielding savings accounts are currently offering 0.60%. “The rates aren’t great, but they are better than zero,” Jenkins said. “They also offer solid protection in the form of FDIC insurance.”

Building Wealth

Find Out More: 7 Simple Habits That Will Make You Richer in 2022

Certificate of Deposit (CD)

Another good option for saving money is a CD. These accounts require you to keep your money on deposit for a specific length of time (often from six months to five years). Usually, the longer you keep your money deposited, the higher the rate you’ll earn. However, if you withdraw your money early, you will likely have to pay an early withdrawal fee that can easily wipe out any interest earnings. If you choose a CD with a term of one year, you may be able to earn as much as 1.00% or more.

Helpful: 35 Useless Expenses You Need To Slash From Your Budget Now

Savings Bonds

Jenkins said that U.S. Series I savings bonds can make sense if you are willing to own them for at least one year. These bonds are designed to help savings keep pace with inflation, which is currently at record levels. Currently, Series I bonds return over 7%, but you’ll earn less if you need to sell them within five years, Jenkins noted. Even so, he said they’re still a great deal for a short-term investment. “I bonds also offer solid protection from the U.S. government as well as some tax advantages.”

Building Wealth

More From GOBankingRates

Share this article:

Building Wealth

About the Author

Casey Bond is seasoned editor and writer who has covered personal finance for more than a decade. Currently, she is a reporter for HuffPost covering money, home and living. Previously, she held editorial management roles at Student Loan Hero and GOBankingRates. Casey’s work has also appeared on Yahoo!, Business Insider, MSN, The Motley Fool, U.S. News & World Report, Forbes, TheStreet and more.
Learn More

Untitled design (1)
Close popup The GBR Closer icon

Sending you timely financial stories that you can bank on.

Sign up for our daily newsletter for the latest financial news and trending topics.

Loading...
Please enter an email.
Please enter a valid email address.
There was an unknown error. Please try again later.

For our full Privacy Policy, click here.