If you’re saving for a goal in the near future and you’ll need to access the money within a year or two, chances are that’s a short-term goal. Whether it’s for a wedding, a dream vacation, or a new appliance for your home, if it’s something you’re unable to pay for right away then you’ll need to save for it.
Short-term goals can be managed by either saving or investing, or both. Read these tips on the different kinds of financial products that could help you meet your short-term goals.
On this page you’ll find
Deciding where to save or invest
It’s true that a basic savings account can be used for many kinds of savings goals or even just to put money aside for a rainy day. However, there are also some investment products that might meet your needs.
Compare different products and decide which one gives you the features you need. Think about when you will need your money and what fees you will have to pay. Also compare the interest rate each investment pays.
When comparing financial products for short-term investments, ask questions such as:
- What interest rate will you get, and could it change?
- Do you qualify for any special rates? Can you get a higher interest rate if you invest more money or have other products with this financial institution?
- Is there another safe option that pays a bit more in interest?
- Are there service fees or other costs and how much are they?
- Can you get your money when you want it — quickly, easily and without penalty?
- Is there any risk you could lose any of your money?
- Do you have to make a minimum deposit?
- Is your money insured by the government?
You can also start by talking to your financial advisor about the products they offer.
What are cash equivalents?
There are three main types of investments or asset classes: cash equivalents, fixed income investments, and equities. A diversified portfolio would typically have investments from more than one asset class. Cash equivalents are short-term investments that include:
- Guaranteed investment certificates (GICs)
- Money market funds
- Treasury bills
Some of the benefits of cash equivalents are that they are relatively low risk and give you easy access to your money if you need it. However, they can also offer a lower return than other investments and may not keep pace with inflation.
If you’re considering investing for your short-term goal, rather than saving, then a cash equivalent may be a good choice.
Saving and investing are both ways to grow your money for the future. They also both have advantages and disadvantages. Learn more about the differences between saving and investing.
Some types of deposits are protected by the Canadian Deposit Insurance Corporation (CDIC) if the deposits are held in a CDIC member institution. This means if the institution fails, your savings deposits are protected up to a certain amount. Learn more about how deposit insurance works.
Where can you put your money for a short-term investment?
Even for a financial goal that’s only a year or two away, you may have more options than you think. Here are nine short-term saving and investing options.
- Pays lowest interest of any short-term investment
- Lower risk
- Usually charges a service fee
- No contribution limits
- You can take your money out any time
- Pays slightly higher interest than chequing account
- Lower risk
- May charge a service fee
- No contribution limits
- You can take your money out any time
3. High-interest rate savings account
- Pays slightly higher interest than regular savings account
- Lower risk
- You may have to put in a minimum deposit
- You may have to let online banks know a day or two ahead to get your money out
4. Guaranteed Investment Certificate (GIC)
- May pay higher interest than savings account, but not always
- Lower risk
- Most require you to invest at least $500
- You must invest for a certain amount of time (from six months to up to 10 years)
- You may pay a penalty to get your money out early
5. Treasury bill (T-Bill)
- Lower risk
- Pays a higher return than most savings accounts
- May require you to invest at least $5,000
- May charge a penalty if you take your money out early
- Lower risk
- Pays a similar return to T-bills
- May require you to invest at least $500
- May charge fees but no penalty when you withdraw money
7. Commercial paper
- Risk varies depending on the type of commercial paper
- Pays a slightly higher return than most T-bills
- May require you to invest at least $5,000
- May charge a penalty if you take your money out early
- Risk varies depending on the type of bond
- May require you to invest at least $5,000
- Does not charge a penalty if you sell early (but you may have to sell at a lower price if interest rates have changed)
- No guarantee you will make money
- Risk varies depending on the type of bond
- May require you to invest at least $5,000
- Does not charge a penalty if you sell early (but you may have to sell at a lower price if interest rates have changed)
- No guarantee you will make money
Look out for better returns.
Keeping your money in a regular savings account can make sense if your financial goals are short term. But if you’re a couple of years away from reaching your goals, you could be earning a better return on your savings. Always work with a registered financial representative to discuss your short-term goals to get personalized financial advice that can help you achieve your financial goals.
Summary
Short-term financial goals can be reached in many ways. Consider the interest rate you’ll receive on your savings, and how easily you can get your money when you need it.
- If you’re saving for something less than three years away, that’s a short-term goal.
- You can save or invest to reach your short-term goals.
- Cash equivalents are a type of asset class that are often used to invest for short-term goals.
- You can use bank accounts, GICs, Treasury bonds, or other types of investments for short-term goals.
