Best Short-Term Investments UK: A Complete Guide

Antonia Medlicott

A short-term investment is typically one that lasts for five years or less, and there are various benefits and drawbacks to choosing them as part of your portfolio.

In summary: The best short-term investments include; stocks and shares, money market funds and bond ETFs. Read on to find out more details of each short-term investment ideas.

Read my guide to some of the best short-term investments to learn about a selection of the options available.

Also consider: Find the best share dealing accounts in the UK

6 of the best short-term investments UK

  1. Stocks and shares – Find the most popular and best shares to buy today
  2. Money market funds – Learn about money market mutual funds
  3. Short-term bonds – Discover how to invest in government bonds
  4. Bond ETFs – Find out more about bond ETFs and investing in bond funds
  5. High-yield savings accounts – Hard to find higher interest rates and certificates of deposit
  6. Cash management accounts – Discover the pros and cons of cash management accounts

Each asset comes with various advantages and drawbacks, so I’ve discussed these in detail in my guide to help you choose the right ones for you.

1. Stocks and shares

While they are often thought of as a long-term option, stocks and shares can be a useful way to invest for the short term.

Firstly, they are typically highly liquid, making it easy to buy or sell your assets.

As well as this, there are no terms or maturity dates that determine the length or returns of your investments. This could offer the flexibility that attracts some people to short-term investments.

Some stocks and shares can carry greater risk than others, although these often have the potential for higher returns.

When investing money in the stock market, it is often sensible to research the stocks and shares you want to buy. This can add some pressure on investors to make the right decision since returns are not guaranteed.

1.1 Derivatives trading

You could use derivatives to trade stocks and shares in the short term. This involves speculating on the price of a company, rather than actually owning the underlying asset.

When trading derivatives, the investment is typically opened and closed quickly, often within a day. This gives you an option to invest for even shorter periods than day trading stocks and shares.

With this method, you can also speculate that the price will rise (“going long”) or fall (“going short”).

Two of the most common options for this are contracts for difference (CFDs) and spread betting. Read more about these methods below.

1.2 CFDs

CFDs are a way to trade stocks and shares in the short term by speculating on future price movements.

In essence, they are a legally binding contract for a trade between two parties – a buyer (you) and a seller (a provider). These two parties agree to trade the difference in the price of an asset between two certain time periods.

You can purchase CFDs using leverage, meaning you only need a smaller amount upfront to invest larger sums. This can see any gains magnified, although of course this also means any losses will be magnified, too.

It’s important to note that CFDs tend to be highly risky. Indeed, more than half of all retail investor accounts lose money when trading CFDs, so make sure you fully understand this risk before you invest.

1.3 Spread betting

Spread betting involves trying to predict the future price movement of an asset without owning the asset itself.

As with CFDs, you can use leverage to invest larger sums with a smaller upfront investment. Again, this means losses, as well as gains, which could be magnified.

Due to leverage, spread betting can be a high-risk investment strategy where you may lose more than your initial investment. Be sure that you understand how spread betting works if you want to use this method.

Pros and cons of stocks and shares

Pros Cons
  • Highly liquid, meaning they are flexible and accessible
  • No maturity dates to worry about
  • Derivatives offer a very short investment method
  • Some investments may require you to research them
  • No guarantee of returns
  • Leverage on derivatives may see you lose money rapidly

2. Money market funds

Otherwise known as a “money market mutual fund”, this form of short-term investment sees your money invested in a similar way to a mutual fund.

With money market mutual funds, your money is invested on your behalf by a fund manager. They’ll typically target short-term securities, such as treasuries, debt securities, as well as bank and corporate funds, and other assets that pay interest.

The difference between money market funds and other funds is that most of the time, money market funds invest in short-term debt with low interest rates. This makes them a relatively low-risk way to store money while still receiving interest – although there is of course still a risk to your money.

As well as this, a money market fund is a way to diversify your investment since the fund manager will invest across multiple bonds and other assets.

Some investors seek investments in money market funds that have a fixed term and interest rate. This means you’ll know when the maturity date is and exactly how much interest you’ll receive.

One thing to note is that money market funds are not protected by the Financial Services Compensation Scheme (FSCS).

The FSCS protects up to £85,000 of your money in the event that your provider is unable to pay out, such as if they fail entirely. As these funds are not covered, your money will not be covered if your provider fails.

You may also be required to make a minimum deposit to invest in the fund.

Pros and cons of money market funds

Pros Cons
  • Funds are managed by professionals
  • Considered a stable investment
  • Access to fixed terms and rates
  • Low interest rates
  • May require a minimum deposit
  • Not protected by the FSCS

3. Short-term bonds

Bonds are most commonly issued when governments or corporations want to raise funds for activities such as new policies, projects, or campaigns.

Essentially, when you buy a bond, you are loaning that entity your money. They then agree to repay you with added interest – providing you with a steady income throughout the life of the bond.

Usually, the shorter the duration of the bond, the better. This is because interest may be subject to change, which could affect your returns.

So, keeping the duration of a bond to a minimum could help to avoid unexpected changes to the terms of your investment which may affect your returns.

Alternatively, you can look to sell your bond on a secondary market for an instant return if bond prices rise, forgoing the interest payments.

Short-term bonds can be risky if the loanee does not have a reliable credit source. For example, bonds from emerging markets and countries may carry greater risk than others.

Find out more about the differences between corporate and government bonds below.

3.1 Corporate bonds

Corporate bonds involve companies taking loans from investors that are repaid with a predetermined interest rate and period of repayment. Investors receive interest throughout the bond. Then, once it matures, the investor is repaid their loan for the corporate debt.

Corporate bonds are viewed as carrying greater risk than government bonds, as companies are typically more likely to fail than governments. In return, this often means you can earn a slightly higher yield on your investment.

3.2 Government bonds

Also known as “gilts”, government bonds work the same way as corporate bonds except they are a loan to the government. They are regarded as fixed-income investments since the government repays interest at regular intervals. Upon reaching its maturity, the original loan is also repaid. Government bonds are free from Capital Gains Tax (CGT) and Income Tax.

Government bonds typically pose less risk than corporate bonds as it would require the economic collapse of the loanee government for you to lose your investment.

Pros and cons of short-term bonds

Pros Cons
  • Relatively low risk
  • Regular income from interest payments
  • Options for both corporate and government bonds
  • Low interest rates on shorter terms
  • Interest rates may be subject to change
  • Emerging markets may have greater risk

4. Bond ETFs

Bond ETFs are a collection of multiple bonds represented in an exchange-traded fund (ETF). They pay investors a monthly income based on the success of the investments in the fund.

These short-term bond funds can be a good way to reduce risk through diversification. This is because the fund can represent hundreds, if not thousands, of bonds, which can help to reduce your risk by broadening your exposure to a wider number of bonds.

Since they are traded on exchanges, bond ETFs can be easily bought, sold, or withdrawn with greater ease than regular bonds. That means they can typically offer more liquidity to investors than regular bonds, while still paying monthly interest.

One inherent risk to bonds is the possibility of the loanee defaulting on their payments, meaning they are unable to pay your investment back. This could mean the fund, and you as a result, could lose the money invested.

Bond ETFs are a good way of removing many of the complications that come with buying bonds over-the-counter, such as the uncertainty of prices. Meanwhile, they can be a useful tool to diversify your investment portfolio since they invest in multiple bonds at once.

Pros and cons of bond ETFs

Pros Cons
  • Instant diversification from a single investment
  • Greater accessibility of funds
  • Highly liquid as they are traded on an exchange
  • Possibility of loanees defaulting, meaning you may lose value
  • Interest rates could change
  • There may be fees to pay to the fund provider

5. High-yield savings accounts

A high-yield savings account is a type of bank account, typically paying higher interest rates than an easy access account. They are usually offered by banks and building societies.

Banks don’t give out high interest rates for no reason, so a high-yield savings account may often require a larger minimum deposit to access the generous yields.

Before investing, you should know that high-yield savings accounts can have withdrawal limits and their interest rates can change. So, make sure you check these terms before you save your money.

Provided that the institution your account is with is covered under the FSCS, up to £85,000 of your savings will be protected in the event that the provider fails.

If you want to hold more than £85,000 in high-yield savings accounts, you may want to hold your money in multiple accounts across providers.

This is because the FSCS protection counts for each provider, meaning you can maximise your coverage by holding money above the £85,000 limit with different institutions.

5.1 Certificates of deposit

An alternative to savings accounts are certificates of deposit (CDs). Essentially, these are another type of savings account that can be issued by a bank or credit union – although other financial institutions offer them.

They are widely accessible and work by making a deposit with a bank or similar institution. There may be a minimum initial deposit required, depending on the provider.

You’ll typically agree not to make a withdrawal over a fixed term. If you try to withdraw money before the end of the term, you may face withdrawal penalties.

This deposit then gains interest at a fixed rate until the term expires. Once it expires, you can withdraw your initial investment with any interest earned.

Pros and cons of high-yield savings accounts

Pros Cons
  • Widely offered
  • Interest rates above the average
  • Funds are often covered by the FSCS
  • May require a large initial deposit
  • You may face penalties for withdrawals
  • Interest rates could change

6. Cash management accounts

While not that widely offered, a cash management account is more common among investment firms and robo-advisors, rather than in high street banks.

A cash management account is similar to a checking account, apart from being able to earn interest. They are an ideal short-term investment if you want to protect large sums of money while still earning interest on these funds.

Some cash management accounts also offer useful management services, such as cards to access ATMs and chequebooks, as well as online and mobile services.

With low fees and the ability to store your finances in one place, it allows general mobility of your funds between different accounts. As a result of this, you may be better able to take advantage of short-term savings opportunities, allowing you to transfer money from one account to another.

It’s worth noting that cash management accounts often require a higher minimum investment than other options.

Pros and cons of cash management accounts

Pros Cons
  • Range of financial management services offered
  • Quick and easy to move funds around
  • Storage, management, and potential growth of funds in one place
  • May require a larger minimum deposit than other options
  • Not widely offered
  • May be fees to pay for holding your money

How do you make short-term investments?

Each of these different options will require a different method to access it. Below, I’ve laid out the steps for investing in each one.

Stocks and shares

To invest in stocks and shares online you must:

  • Choose a stock broker or investment platform – make sure you understand how their fees work as they can differ between providers
  • Open a share trading account – you need to open an account that allows you to buy and sell shares, such as General Investment Account (GIA), Stocks and Shares ISA, or even a self-invested personal pension (SIPP)
  • Deposit the funds you want to buy stocks with
  • Buy the stocks and shares you want to invest in – select the companies you want to buy shares in and purchase them. Remember, you don’t have to invest your initial deposit all at once.

Money market funds

Technology has eliminated most of the tedious visits you have to make a physical bank. Nowadays, a money market account can usually be opened online with these simple steps:

  • Research money market funds – while they are seen as a low-risk investment option, you should understand how these funds work before investing. Please note that they typically are not protected by the FSCS
  • Apply for an account – your provider will need your personal details, your ID, and proof of address before opening an account
  • Verify your identity – it’s likely you will have to complete different stages of verification for your provider to know it’s really you
  • Place a deposit – some money market funds may have a minimum initial investment you must meet.

Short-term bonds

Government bonds are available directly from HM Government Debt Management Office. However, these deal exclusively with government debt. Meanwhile, commercial debt or corporate bonds can be purchased through regulated and authorised agents:

  • Create an account with an investment broker that offers short-term bonds
  • Decide what kind of bonds you’re interested in
  • Research the bonds and their terms – make sure you understand their time periods, risks, and returns
  • Deposit funds into your investment account
  • Purchase the bonds you want to invest in – you don’t have to use all of your deposit at once.

Bond ETFs

Some view bond ETFs as a more convenient way of making short-term investments in bonds since they are traded on an exchange. To invest, simply:

  • Choose a brokerage – find a platform that offers bond ETFs
  • Create an account – there may be different accounts with various benefits. You should choose one that suits your investment goals
  • Deposit funds – deposit funds with your chosen broker
  • Find a fund – choose a fund that has bonds you wish to invest in
  • Invest in the bonds – you are now ready to invest in bond ETFs. You don’t have to invest all of your initial deposit straight away.

High-yield savings account

Online banks provide “brick and mortar” banks with some competition by offering some of the best interest rates on savings accounts.

To open a high-yield savings account online, you need to:

  • Search around for the best rates – rates offered by providers will vary, so it’s a good idea to check some of them before deciding
  • Choose your provider and send an application – after deciding which platform is best for you, you’ll need to fill in some personal details that confirm your identity and address
  • Make your deposit – some savings accounts might have minimum deposits that may depend on the interest rates they offer
  • Keep yourself updated – one of the benefits of using an online provider is that you can check your money’s status whenever you like.

Cash management accounts

Opening a cash management account is a fairly simple process.


  • Find a provider – these are slightly less common among regular banks so may be more accessible with investment firms or robo-advisors
  • Open an account – this can typically be done online
  • Make your deposit – this could be quite a high minimum deposit depending on your account.

What is a short-term investment?

Definitions will vary from person to person, but the general consensus is that a short-term investment is anything that lasts for five years or less.

Some investment instruments are designed for investment over a long period, whereas others are designed for short-term investments. Understanding how these differ and ways of making the most of each can make short-term investing much easier.

Short-term investments in things like government bonds, corporate bonds, bond ETFs, and similar interest-based securities are unlikely to earn the best interest rates. Higher rates are usually reserved for higher-risk bonds that last longer.

How could you make short-term investments safe?

First of all, you should understand that all investments carry inherent risk and that no investment can be 100% safe.

Even options considered the “safest” still carry risk with them and short-term investments are no different. After understanding there is no risk-free way to invest money, you can start to consider which types of short-term investments suit you.

If your investment strategy contains high-risk investments, you should make sure you understand the consequences of the risks and how much of your capital may be at stake. The level of risk you take is ultimately down to you as the investor.

Even so, there are steps you can take that can help to reduce risk. For example, diversifying your portfolio and spreading money across assets in different industries, sectors, geographical locations, and financial markets can help to limit the chance of all your investments losing value at once.

Meanwhile, if you need access to the money you are investing, you should consider the accessibility of the instrument you want to invest in. This is because some methods of short-term investing involve maturity dates and fixed terms – meaning you could incur penalties if you withdraw money early.

It may be a good idea to choose a short-term investment option with high liquidity so you’re able to withdraw your funds without consequence, should you need access to your money.

How should you approach short-term investments?

Before committing to short-term investments, it’s important to remember that you are unlikely to “get rich quick” and you should set your expectations accordingly.

Assuming your investments will generate market-beating returns could result in you chasing money and taking risks that you otherwise wouldn’t.

In the event that you lose money, which is entirely possible when investing, you should have a defined risk appetite – this is how much money you’re willing to lose. This can help you understand when losses will affect your personal finances.

Likewise, you should always make sure you have an emergency fund to spare for essential payments such as bills and living costs. Always take your personal circumstances into account.

If you know you have a low risk tolerance, consider avoiding high-risk investment options. Alternatively, consider taking independent investment advice from a financial advisor if you’re unsure whether a particular investment is suitable for you.

Also consider: My guide on where to invest money to get monthly income UK

Best Short-Term Investments UK FAQs

What features should you look for in a short-term investment?

The features you may want to look for when considering short-term investments include low transaction fees, fixed-term and fixed-rate agreements, high liquidity, generous interest rates, lower risk, and transparency.

What are some options for short-term investment?

Some options for short-term investments include stocks and shares, money market funds, short-term bonds, bond ETFs, high-yield savings accounts, or cash management accounts.

Please note:

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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