If you have a savings goal that’s coming up in the not-too-distant future — such as a large purchase, vacation, or wedding — you may want to consider some good short-term savings options.
There isn’t a hard and fast definition of short-term savings, but it’s typically considered to be money you want to use within the next few months or years.
While there are a number of options for short-term savings, one of the best places to start stashing cash for a short-term goal can be a savings account. They can offer safety (so you shouldn’t lose any money), liquidity (allowing you to access money when needed), and growth (meaning they are interest-bearing).
But some of these accounts offer more liquidity and higher interest than others. With a little reading and research, you can start socking your cash away in the right place — and start moving closer to those short-term savings goals.
Key Points
• Short-term savings are for goals you plan to accomplish in the next few months or years.
• Online savings accounts generally offer higher APYs than regular savings accounts, as well as lower (or no) fees.
• CDs lock in interest rates for fixed periods and may offer competitive rates.
• Money market accounts combine savings and checking features but often have higher minimum balances.
• Cash management accounts provide flexibility, allowing users to spend, save, and potentially invest from a single account.
Should You Invest Short-Term Savings?
Depending on your short-term savings goals, a savings account may be a wise move. One significant downside to any cash savings account is that they tend to have relatively low-interest rates.
You might however wonder: Should I invest this money in stocks or a mutual fund in order to meet my short-term goals more quickly?
Generally speaking, for short-term money, your goal is not necessarily to maximize returns. It is to control the risk — to keep it safe — so that the money is available when it’s needed.
While everyone’s risk tolerance is different, the downside to investing in the market is that you might lose money in the short term. Investment returns start to “smooth out,” or return their average yield, over longer periods. Shorter periods tend to be volatile and unpredictable — especially in the stock market.
To invest in the short-term would require complete flexibility — if the market were to fall steeply, it would likely be best to wait it out and avoid realizing losses. Suddenly, you’re on the market’s timeline, not your own.
Because of this, these investments may be inappropriate for an emergency fund, which needs to be accessible at all times. The same goes for those financial goals with a hard deadline (such as wanting to use this money as a down payment in two years).
That said, there’s a trade-off. Many of the options for short-term savings may not keep up with increasing prices, or inflation, and its impact on the cost of living. “For money you’ll use in three to seven years, you may be prepared to take slightly more risk than a savings account,” says Brian Walsh, CFP® and Head of Advice & Planning at SoFi. You might choose to use a brokerage account where you can invest that money in stocks, bonds, cash, or other asset classes. Just be sure to keep your comfort with risk in mind.”
If you’d prefer to avoid risk with your short-term savings, here are options to consider.
Option 1: Online Savings Account
Online savings accounts, also sometimes referred to as high-yield savings accounts, are an increasingly popular option for short-term savings. As their name implies, these accounts are offered by banks or financial institutions that only operate online. Here’s the scoop:
• That means no brick-and-mortar locations and no chatting up a banker face-to-face. The upside: When you compare accounts offered by traditional banks vs. online banks, the latter typically have lower overhead costs and pass that savings onto their customers in the form of a higher annual percentage yield (APY).
• A potentially higher rate of interest isn’t the only reason to use online-only savings accounts. The websites and mobile apps for online accounts essentially serve as storefronts, so online financial institutions often devote lots of resources to make sure they’re optimized and easy to navigate.
• Additionally, many online-only institutions don’t have monthly account fees, which can be a real burden for those at the start of their savings journey. (For example, some traditional banks might charge a fee when you balance drops below the minimum.)
• Banking online doesn’t mean you have to forgo the conveniences of your neighborhood bank. You can typically still do all of the important banking duties, such as depositing checks (via mobile deposit, or snapping a picture of the check on your phone), moving money back and forth between accounts, and speaking with a customer service rep.
In the past, the Federal Reserve limited savings account withdrawals to six per month, but this rule has been lifted. Even so, some banks have continued to put limits on the number of withdrawals you can make from a savings account. Before you sign up, you’ll want to understand the rules for accessing your money.
Also, while online banking is now considered mainstream, it’s always smart to do a little background research before you open an online account. You may want to check, for instance, to make sure an institution has Federal Deposit Insurance Corp (FDIC) coverage, a government-guaranteed program that protects your money up to certain limits.
Option 2: Certificate of Deposit
A certificate of deposit (CD) is a savings account that holds a fixed amount of money for a designated period of time, such as six months or three years. In exchange for the deposit, the bank pays a fixed rate of interest.
Generally, CDs with longer maturities offer higher interest rates. However, this isn’t always the case. For example, banks may offer high interest rates on short-term CDs when they expect the Federal Reserve to cut rates in the future. As a result, it pays to shop around and compare CD rates and terms.
You may also want to keep in mind that the interest rate on a CD is locked in at the point of purchase, as opposed to the interest rate in a savings account (both traditional and online-only), which may fluctuate. If you’re interested in locking in a certain rate, you may want to consider a CD. (Although be aware that you would be locking yourself into a lower rate if rates rise.)
While savings accounts are designed to provide regular access to your money, CDs are not. Because CDs have a fixed time frame, there may be a penalty to access the money before the period is over. And in exchange for the lock-up period, CDs generally offer higher rates than traditional savings accounts.
CDs can be a good option for people who don’t need to touch their short-term savings for a certain period of time. And they are typically FDIC-insured.
Option 3: Money Market Account
A money market account (MMA) is a mix between a savings and a checking account.
These accounts, offered by banks and credit unions, can allow you to write checks (though you may be limited on how often) and may also have a debit card. (Savings accounts, whether online or at a traditional bank, typically do not offer checks or a debit card.)
Returns on these accounts often beat those on traditional savings accounts. Depending on what’s happening in the economy overall, an MMA may be in line with that of an online-only bank account.
However, MMAs sometimes require higher minimum balances than other types of savings accounts. So, this might be a better option for those with more money to save.
MMAs are considered a safe choice since, like other types of savings accounts, they are typically covered by FDIC if held by a bank, and National Credit Union Administration (NCUA) if held by a credit union. (Although, it’s always a good idea to double-check insurance coverage to be sure.)
Keep in mind that MMAs differ from money market mutual funds, which are not FDIC- or NCUA-insured.
Option 4: Cash Management Account
A cash management account (CMA) is a cash account offered by a financial institution other than a bank or credit union. These accounts are designed to merge the services and features of checking, savings, and investment accounts, all into one offering.
While CMAs are typically offered by financial service providers that are not themselves technically classified as banks, they are still usually covered by FDIC deposit insurance like regular bank deposits — often through a partner bank.
Generally, CMAs function similarly to a traditional checking account, yet pay interest that is often higher than regular savings accounts.
Some brokerage firms require a large minimum deposit to open a CMA, or may charge monthly fees for anyone under that minimum. Before opening a CMA, it’s a good idea to ask about monthly fees and minimum balance requirements.
Also, since CMA providers typically “sweep” your uninvested cash into interest-paying deposit accounts held at partner banks, you’ll want to make sure those sweep accounts are FDIC-insured.
The Takeaway
Short-term savings is money that you likely will need in the not too-distant future, such as within a few months or years.
There are a number of options for short-term savings, but some good bets include online savings accounts, CDs, money market accounts, and cash management accounts. These accounts tend to be low-risk and generally offer a higher return than a traditional savings or checking account.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).
Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.
Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.
As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.
Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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