Short-term savings refer to the savings that will be used in one year or less. It could be to purchase big ticket items or fund an unexpected purchase. A good example is replacing your heating system in the winter, since your existing one broke down. In short-term savings liquidity gets priority over interest earned.

Let’s take a look at some of the short-term saving instruments that are available.

Savings Accounts:

The easiest place to save money is in a saving account in a bank, a credit union or co-operative. Liquidity in a savings account is high, while interest rates they attract are quite low.

Saving Bonds:

U.S saving bonds by the U.S Treasury give the principal amount with interest on redemption. The benefit of bonds are that they earn market based rates. They are risk free and highly liquid. They earn better rates of interest than savings accounts. No penalties for redeeming in a shorter time but longer redemption periods have better interest rewards.

Money Market Accounts:

These accounts are given by banks rather than the government. Money market mutual funds earn from various saving instruments. Banks, brokers and mutual funds offer them.

Corporate Bonds: