Best Short-Term Investments in the UK in 2024 – Bonds and Savings Options

A lot of advice given about investing carries strong recommendations about investing long-term because it is one of the risk-mitigating factors. But that doesn’t entirely exclude the many short term investments UK investors can access. So as long as you get good advice or are privy to reliable information, you can make excellent returns on stable, short-term investment vehicles.

If you’d like top advice on how to invest £10,000, for example, Moneyfarm can be an invaluable source of help.

The saving versus investing argument

But before we get too far into the investment debate, we ought to look at other saving options. Why? Because investing involves some sort of risk, whereas the right type of savings account can be risk-free. On the surface, that sounds like a no-brainer. Why put your money into a risky situation when you don’t have to?

It boils down to two things – being able to access your money when you need it and inflation.

To get the best interest rate on a savings account, you invariably have to allow the people you save with to keep your money for a specific length of time. Unfortunately, accessing your cash before that time is up may not be possible, or it could cost you significantly in fees. Then there is inflation.

Most cash saving and investment vehicles pay interest at very low rates – typically between 1 and 2%. With inflation already at 9.64% and sure to rise higher, cash savings and investments will be worth significantly less in no time flat, and the longer they remain in their accounts, the more remarkable that loss will be.

However, investing your money in stocks and shares ISAs or ETFs will pay interest at a much higher rate than a savings account would – in the region of 7%. Yes, there is a risk, as the value of stocks and shares can fall as well as rise. However, it may be possible to offset some of that risk by (a) creating a diversified investment portfolio and (b) by being prepared to invest long-term in the hope that if the markets do fall, you can bide your time and await a recovery.

So, where does that leave short-term investment options UK funds?

Evaluating Your short term versus long term financial needs

Evaluating your short vs long financial needs and balancing your savings plans is not easy. Many different savings and investment products are available today in the UK, making it hard to know which ones will best suit your requirements.

It’s good to sort your financial needs into three categories: short-term, medium-term, and long-term.

Your short-term needs should cover unexpected emergencies whereby you need to access your cash straight away. The sort of short-term savings options UK investors might like to consider will be current accounts that offer the best interest rates available or immediate access savings accounts.

Your medium-term needs could include things like saving for a deposit on a house, for which something like a Lifetime ISA is appropriate. Okay, the name of the account, “Lifetime,” might not sound right, but the way it works makes it perfect for mid-term saving.

Long-term speaks for itself and, in many cases, covers saving or investing for your retirement years. A suitable type of investment for this goal is the Stocks and Shares ISA. It balances risk through diversification and long-term investing.

But the short-term high-yield investments UK investors have access to can deliver spectacular results when it comes to returns. So, the trick is to find short-term investments UK products that give you great returns and are relatively safe. Of course, most cannot guarantee safety, and that is where the investor profile comes into play.

What are the advantages of short-term investing?

Before you start investing, it’s important to have your own investment strategy. It’s all about investment portfolios.

We’ve already mentioned the advice that is often given out regarding long-term investments to mitigate risk. The other piece of advice usually offered concerning risk mitigation is diversification. Nobody likes the thought of losing money, and having a diverse portfolio of long-term investments is considered the safest way to invest.

But there are many short-term low-risk investments UK investors can take advantage of, and when carefully chosen, they become part of a diversified portfolio. So, what are the advantages of such short-term funds?

• Flexibility – You don’t have to wait long for securities to mature before you can get your hands on your money, giving you more flexibility when you need it.
• It is possible to make substantial amounts of profit in a short time.
• There is less risk because the money invested per transaction is usually lower.

What are the disadvantages of short-term investing?

The potential disadvantages of short-term investments UK funds are as follows:

• Higher costs because of high transaction volume and consequential brokerage fees.
• Requires expertise. Price movements must be closely monitored to identify the right buying and selling opportunities.

If you go down this road, it will be essential to select the best short-term savings options UK investors have access to.

How about short-term bonds?

In the main, investing in bonds is considered relatively safe. However, no investment is ever 100% safe. It is the nature of investments. The short-term bonds UK investors can take up, pay interest rates significantly lower than long-term bonds. But you can choose to invest in many types of short-term bonds, including corporate, government and municipal, for periods under 5 years.

Stocks that are best for short term investments in 2024

Most investors tend to think of stocks as long-term investments that gradually appreciate and provide dividend payouts from time to time. Some of the best short-term stocks UK investors can buy are those that are currently undervalued or those that follow seasonal trends and patterns. Some are prone to profit-taking when their resistance level is met.

Regardless of their nature, good short-term investments that UK investors make can offer the chance to make quick profits.

Apart from high yield savings accounts and short-term corporate bonds, which we have already touched on briefly, some other categories for best short-term investment options UK investors can consider include:

• Cash management accounts – These allow you to deposit money in various short-term investments. They act rather like omnibus accounts.
• Money market accounts – Similar to bank deposits, but they usually pay higher interest rates, although they often require higher minimum investments.
• Money market mutual funds – These funds invest in short-term securities, such as treasuries, corporate and municipal debt, and bank debt securities.
• No-penalty certificates of deposit – No penalty CDs give you the opportunity to evade the typical fees that banks charges if you should cancel your CD before maturation.
• Short-term UK government bond funds – While these are very safe as they are underwritten by the UK government, interest rates are low, and the shortest short-term bond funds gov UK term is 5 years.

For most people of “ordinary means”, large, short-term deposits for UK investors are best avoided. As has already been said on several occasions, any sort of investing carries a certain amount of risk, so a good principle is to only invest what you can afford to lose. So, if you were to ask the question, how to invest £100,000 – the answer would be in a long-term investment fund.

A general investment account could be the best option

Diversification is often spoken of and recommended when it comes to investing. Earlier in this blog, we talked about evaluating your financial needs and considering short-term cash investments for UK savers, safe short to medium-term UK investment funds, and long-term.

A general investment account could be the perfect answer. Cash ISAs, Stock Market ISAs, Lifetime ISAs etc., can give you the sort of spread you need in your portfolio. They manage tax efficiently (they are essentially tax-free vehicles), offer higher interest rates and are not high risk. They also allow you prompt access to your money without paying a penalty.

As long as you ensure you use a personal wealth advice specialist company like Moneyfarm, as your fund adviser, a company who are authorised and regulated by the Financial Conduct Authority, you can’t go wrong.

A general investment account gives you complete freedom of choice to build and amend your investment portfolio as and when priorities and demands change. It affords you total flexibility.

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FAQ

What are short-term investments?
Short term investments are assets that serve an investor’s immediate financial needs and have a short term maturity date, typically within a 5-year period. The investments can mature in a few days to a few years. At maturity, the investment is converted to cash.

What is the best short-term investment in the UK?
Some of the best short-term investments in the UK include high-yield savings accounts, short-term bond funds, cash management accounts (CMA), certificate of deposit (CD), and UK government bonds. The best short term investment for you will depend on your investment goal, risk tolerance, and investment maturity date.

How to invest my 10k short term?
Places to invest 10K for the short term include short-term corporate bond funds, peer-to-peer loans, money market accounts, UK treasury bills or notes, high-interest savings accounts or cash ISAs.