Your business is making a steady flow of income from everyday sales. With this, you’re able to cover overheads and other hidden costs in addition to making some profit. Things seem to be going smoothly but will you be able to achieve growth in the long run at this rate? Maybe you’ve decided to save some money towards an investment with an aim to make improvements on your business.
However, losing the investment would have a serious negative impact on your business so you take the slow lane, which is safe yet still effective. The problem with the safe lane is that many of the options take years and sometimes decades in order to yield desired results. What if you need the money in a year or so? That’s where it gets tricky as it’s not about your personal finance but the finance of your entire business. The good part is that you do have a few short-term investment options that are safe and still produce desirable results. Take a look at some of those options:
#1. Money Market Account
One of the safest investment options for your business is a money market account. The best part about the option is that it’s liquid and insured (FDIC or NCUA) up to $250,000. It has a bit higher interest rate than a traditional savings account, making for a good investment. Even if your business needs some extra cash for an emergency or unforeseen circumstance, you can always tap into the account and withdraw the funds that you need.
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#2. Certificates of Deposit
Popularly known as CDs, Certificates of Deposit are like a fixed-term loan that you give to your bank in the simplest terms. There are different varieties of terms ranging from as short as three months up to five years. So you have flexibility in terms of that and you also get a certain amount of interest from the bank upon maturity. Note, however, that you will need to pay a fee if you withdraw the funds before maturity.
Whether you go for government, municipal, or corporate bonds is up to you; but bond funds can be an excellent way for businesses to make an investment of their existing funds. Although it’s a bit riskier than the other options, bond funds yield higher interests on capital. Short-term government bonds may be your best bet, wherein you have the option to invest in securities with a maturity period of one to four years. If you’re willing to wait a little bit longer, you also have the option to go for mid-term government bonds that take around four to ten years to mature.
Municipal bonds are a bit riskier than government bonds but the best part is that you get a federal tax exemption on the interest earned. Additionally, there are some bonds which are exempt from state and local taxes. If you’re looking for a short-term investment option, you can always go through a major brokerage firm to buy a bond from someone who was closer to maturity.
Short-term corporate bonds are known to yield high interest rates but are much riskier than government and municipal bond funds. If companies default on their debts, that’s where it gets bad for you. If you do opt to invest in a short-term corporate bond, make sure you invest in companies with excellent credit in order to minimize the risk.
#4. Treasury Securities
While Certificates of Deposit are loans you give to your bank, Treasury securities are loans you give to the government. There are three different types of Treasury securities, but all of them are sold in $100 increments. You can go for short-term securities like Treasury bills with a maturity period of between four weeks and a year. You don’t get an interest on a fixed schedule with Treasury bills, but you get to buy them at a discount ranging from 0.17% to 0.66% of their face value. Once the securities mature, you can then cash them in for the actual face value.
You also have medium-term securities like Treasury notes, which take anywhere from two to 10 years to mature. With this type of investment, you get paid an interest every six months until their maturity. Treasury bonds also pay an interest every six months but they take much longer (30 years) to mature. These may not be the best option if you’re only looking for a short-term investment.
Now you’ve got a fair idea about the safe and short-term investment options you could go for. You can always go for a regular savings account at a bank but the interest rate is much lower than the options given above. It wouldn’t hurt to diversify your investments and choose multiple options.
Neeraj Kumawat is a marketing consultant and a passionate writer. He loves to shares his ideas on retirement, finance, money management etc. He loves travelling and reading travel books in the free time. You can find him on Twitter & Facebook .