3 Ways to Help Save for Your Short-term Goals

What we’ll cover:

• The right financial vehicle can help you achieve short-term financial goals
• Short-term goals are generally those which you can accomplish in three years or less
• Some accounts you can consider include: high-yield savings account, certificate of deposit, and money market account

You probably have a few money goals that you're working on and eventually hope to check off. Some of these may be long-terms goals, like paying off a mortgage, building a nest egg for retirement or saving up a college fund for your kids.

Then there are more near-term goals like putting enough away for that dream vacation, saving for a new car or just beefing up your emergency fund. You may be hoping to pull these goals off sooner, say within the next year or few months.

When it comes to defining what a "short-term" goal is, it might be helpful to consider your own timeline so that you can choose the strategy that's right for you. For instance, your financial strategy for saving for retirement is likely going to be different than saving up to buy a car.

Below, we'll dive into what exactly short-term goals might be and offer some options that could help you achieve them.

1. High-yield savings accounts

You’re probably already familiar with high-yield savings accounts, or savings accounts in general. Thanks to the ease of withdrawing your money, savings accounts can be a great option for putting away money for short-term goals. 

One benefit is that you'll be able to withdraw funds pretty much whenever you want (although you may be capped  on the number of withdrawals you can make a month). 

Also, with a high-yield savings account, you could earn a higher interest rate than you would with a traditional savings account.

2. Certificate of deposit (CDs)

Certificates of deposit, or CDs, are a type of deposit account that usually offer a higher interest rate than a traditional savings account.

In exchange for that higher interest rate, though, you agree to lock up your money for a set amount of time, called the CD term. If you withdraw your money before the CD term is up, you could be charged a penalty fee (except in the case of No-Penalty CDs, which you can learn more about here).

CDs come with a range of term lengths (6 months, 12 months, 18 months, etc.), and generally, the longer the CD term, the higher the interest rate.

Good to know: CDs typically come with fixed rates, meaning the interest rate won't change during the CD term. 

When your CD matures, you can take your money out or put it in another CD with the same term (or put it in another CD with a different term).

Although having your funds locked up for a set amount of time may not make them as accessible, or liquid, as they might be in a savings account, CDs can still be a good option for near-term goals. When considering CDs, think about choosing a term that lines up with when you’ll need the money.

For example, if you know you want to purchase a car a year from now, a 12-month CD could help you reach your goal by earning some interest between now and then.

3. Money market accounts

A money market account (MMA) is a type of deposit account that traditionally earns a higher interest rate than savings accounts and may also come with a debit card and checks. Let's say you're saving for a wedding and want to earn some interest on your savings, but you also need to pay various vendors throughout the planning process - an MMA may be a good option for you.

The average interest rate you can typically earn with a money market account is usually lower than what you could earn with a CD. However, accessing the money in an MMA tends to be much easier, since your money isn't locked up the same way it is with a CD.

You can continue to add money to an MMA on a regular basis, and depending on the terms, you may be able to withdraw money using a debit card or checkbook, in addition to digital withdrawals.

When deciding between a CD and a money market account, it can be helpful to consider how accessible you want your money to be and weigh that against the potential interest you could earn.

Good to know: Money market accounts (MMAs) are sometimes confused with money market funds, or money market mutual funds - but they're all different products. MMAs are deposit accounts offered by banks and credit unions. Money market funds, on the other hand, are offered by brokerage firms.

Parting thoughts

All the financial vehicles we reviewed could help you reach your short-term financial goals. (You might even use some of them for long-term goals.)

Know that you don't necessarily have to pick one or the other - you could have a few of these accounts, depending on what your goals are, how soon you'll need to access the funds and what kind of returns you'd like to see.