How To Invest Your Money Short-Term

By Dave Nyam •  Updated: 09/01/24 •  6 min read

When looking to attain some specified short-term financial goals, especially against the backdrop of a dynamically changing economy that characterizes South Africa, investing for the short term remains an important strategy. The ventures can be made to save for a down payment on a house, for a vacation, or just add up your savings. The trickiest part is to balance the money between its risk and return so that when the need arises, the money is easily accessible. Clearly understanding all the possible avenues available and how best one can apportion their short-term investment is core to making sure that realistic outcomes are aligned with the financial objectives of an investor.

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How To Invest Your Money Short-Term

In contrast, short-term investing presents a different strategy from long-term investing. Short-term investment values the liquidity and safety of the invested amount as against high yields. The first thing that you should do in this respect is to clearly state the financial goals you want to achieve, maybe even stating the rough time when you will be in need of the funds. This is important since it will dictate the kind of investments that will best serve your condition. For instance, if your need for money is in a year, you should focus on investments with a very low-risk level and easy liquidity.

Next is to check your risk tolerance; since it is a short-term goal, it will best be biased to conservative investments for the protection of capital. The markets are still erratic in the short term; therefore, it is usually better to avoid certain volatile assets like stocks. Look for options with fixed returns or those involving minimal exposure to market risk.

Investment for a short period requires diversification. Diversification spreads your money across asset types, therefore reducing your risk. This can mean investing in a couple under money market accounts and others into short-term bonds or fixed deposits; in other ways, you are not putting all your eggs in one investment type, thus reducing the total risk.

It will be very critical to monitor and review your investments on a regular basis. To the extent that the investments are short-term in nature, changes in interest or market conditions can very quickly have a material impact on yield. Keep yourself informed and be ready to change assets as conditions change to ensure your investments remain in line with and supportive of your ultimate financial objective. Remember, short-term investing is all about stability and liquidity, not chasing returns, so focus on the preservation of capital while earning a reasonable return.

What investment is best for the short term?

In SA, short-term venturing options offer a good balance between safety, liquidity, and return potential. One such attractive alternative for your corporate treasures is venturing into a money market fund, which primarily focuses on various short-term debt instruments such as government securities, corporate bonds, and bank deposits.

Money market funds are ideal for short-term venturing purposes since they will return more than traditional saving accounts with low-risk characteristics. These funds are very liquid, and you may access your money with concise notice, meaning they can be flexible for those requiring quick access to cash.

Fixed deposits are the other boom alternative in short-term investments, more so in high-interest-rate periods. Regarding various kinds of fixed deposits, in South Africa, most banks do offer them, whereby you can keep a lump sum for a specific period, starting from a few months to several years. Additionally, South African banks have fixed deposit options that have much higher interest rates compared to selecting mere savings accounts, usually when vowing to commit to the long haul. But with a term deposit, the trade-off is that your money is tied up for the length of the term, and breaking that may incur penalties.

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Notice deposits are something of a halfway house between money market funds and fixed deposits. They pay higher interest rates than regular savings accounts, but in return, you have to give them notice of withdrawal. This will vary from product to product but may range from 7 days to 90. Thus, they work well if you’re after a higher return but still want some liquidity.

For those wanting more diversification away from traditional banking products, RSA Retail Savings Bonds are a government-backed product offering quite competitive fixed rates on terms starting as short as two years. All the same, the bonds are safe with assured and predictable returns; thus, it is a pretty reliable choice for conservative investors.

Which bank is best for investment in South Africa?

Closing in on the best bank for such short-term investments in South Africa will depend on several factors, including the most appealing interest rates on offer, the product mix, and the customer care offered. Among the majors, multiple players offer very competitive packages. Absa boasts a myriad of fixed deposit options that prove especially attractive during a high-interest rate environment. They provide different tenors, from six months to five years, with interest rates that vary based on the amount deposited and the length of time. Absa allows flexibility in terms of interest payment frequency, where one might choose between receiving monthly interest payments or one lump sum amount at maturity.

Another reputable, worthy candidate is Standard Bank, specifically in the case of notice deposit accounts. Tenors are available through their notice deposit offering, which ranges from 7 to 90 days, with relatively attractive interest compensation for periods of notice that are more significant than 32 days. Standard Bank also has an online platform that will allow easy comparison and management of investments, thus providing the ability to administer such investments across the board for both new and experienced users.

Capitec Bank has recently entered the marketplace by pioneering an ever-simplified outlook on banking and investment. Their interest-paying savings accounts charge competitive rates, as no monthly fees are typically charged, and this avails an opportunity for cost-conscious investors willing to receive incentives on their deposits. You can open several savings plans with Capitec, each with its own goal and term, to enjoy flexibility and control over your investments.

FNB offers a wide variety of investment options, and many of its customers commonly utilize money market accounts and fixed deposits. FNB also has competitive ‘fixed deposit’ interest and can also give an allowance to access part of the money invested without any vicious penalties. FNB has an excellent digital platform where one can easily access all management tools relevant to their numerous account packages and even more straightforward access to the current products.

Final Thoughts

In South Africa, many short-term investments are available according to the level of risk that you can take and the means of return that you have. The important thing that you should know is how to maneuver in these investments. With your level of needs, diversification, and your choices in the products or banks, you are then in an excellent position to make decisions in alignment with your objectives for short-term investments. The trick is to stay informed, be flexible, and put stability first, making sure that your money keeps working for you in the short term.

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