3 Best Short Term Investments in the UK 2024

Jitanchandra Solanki
8 Min read

When building an investment portfolio it is important to consider the time frame of your investments. Investors will usually make decisions based on building a portfolio of long-term investments or short-term investments.

Investors will also have a different time horizon for what is considered long-term or short-term. Most long-term investors are likely to focus on holding positions for more than a year. In this article, we discuss some of the best short-term investments in the UK for this year.

However, what is suitable for each individual will vary so it’s important to do thorough research, understand the risks of any type of investment and that past performance is no guarantee of future performance.

Long-term vs Short-term Investing

Long-term investing involves holding investments for a long period, typically more than a year. Short-term investments involve holding investments for a shorter period, typically less than a year. Which type of investing is most suitable depends on the needs, capital and experience of the individual investor.

Most long-term investors try to capitalise on compound growth to achieve returns further into the future. This can include investing in equities, index funds and ETFs (exchange-traded funds) which are products typically held in a pension plan. Short-term investors are typically trying to seek an income from their investments that can be paid out more regularly. This can include online savings accounts or bonds that pay out regular interest but also dividend stocks. 

3 Best Short-Term Investments UK 

Below is a list of some of the best short-term investments in the UK.

1. Savings Accounts

Online savings accounts are typically provided by banks and building societies. By investing in an online savings account you get paid interest on your capital. There are different types of savings accounts which will offer higher or lower interest rates depending on how long you can tie up your capital.

Instant Access Savings Account

An instant access savings account is an account in which you can take out your capital almost instantly with no lock-up period. These accounts will typically pay the lowest interest rate and provide the lowest rate of return on your capital.

Fixed-Term Savings Account

A fixed-term savings account is an account in which you agree to not withdraw your capital for a fixed term which could be from one to three years. These will typically pay a higher interest rate but you may face penalties if you withdraw your money before the fixed term ends. 

Regular Savings Account

A regular savings account is an account in which you agree to contribute a certain amount of money into each month. These will usually have a higher interest rate than an instant access savings account but will be subject to certain minimum and maximum contribution amounts.

2. Bonds and Bond Funds 

A bond is also known as a fixed-income product. When investing in a bond you are lending money to a government or corporate company that needs to raise money. An investment bond means you lend your capital out for a fixed period and at the end of the term you get your principal ‘loan’ back. 

On top of this initial payment, investors also hope to receive a regular interest payment which is known as the ‘coupon’ payment. While bonds are seen as a safer investment than equities they still carry risk and you can lose your initial investment in the event of the government or corporate company defaulting.

There are a variety of different bonds and terms to know: 

You can invest in government bonds (called gilts in the UK or treasures in the US) or corporate bonds.

  • A short-term bond is considered to be one to three years.
  • A long-term bond is considered to be ten or more years. 

While all forms of investment are risky in that you can lose your entire investment, government bonds are usually seen as safer than corporate bonds. This is because if you bought a UK government bond (a gilt) it is unlikely the UK government would default and not pay back its loans to its bondholders. 

Corporate bonds are assigned credit ratings by rating agencies such as Standard & Poor's. An AAA credit rating is seen as the lowest risk while a D credit rating is seen as the highest risk.

Investors who are comfortable with more risk and have more knowledge and experience in the financial markets may also look at bond ETFs (exchange-traded funds).

For example, the Vanguard Long-Term Bond ETF aims to provide exposure to the “long-term, investment grade US bond market.” According to the fund’s profile, it holds around 2,897 bonds of which 45.20% are in US government bonds, 1.60% in AAA bonds, 6.30% in AA bonds, 20.20% in A bonds and 26.50% in BBB bonds.

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3. Stocks and Shares 

Investing in the stock market is seen as the riskiest investment from the list provided so far. It involves buying shares in a company in the hope the company's value increases and therefore its share price.

Investors can capitalise on any capital gain on its share price or through any dividend payments. As investors can buy or sell shares anytime the stock market is open, they can be used for both long-term and short-term investments.

Dividends represent a share of the company's profits and are usually paid out every quarter to investors (some US companies pay monthly dividends that UK investors can also invest in). For example, the current dividend yield when investing in BT’s share price is 6.73%. This means you may earn this as interest over the year (but dividend yields do vary over the year and are typically higher when the share price is lower).

While this interest rate may seem appealing it’s worthwhile knowing that the share price of BT ended nearly 50% lower last year. The most ideal scenario is to find a stock that appreciates in value and also pays a regular dividend.

What are the Advantages of Short-term Investing?

1. Some short-term investments such as a savings account are usually free to open and can have low minimums to do so. If investing with a UK bank then they are covered by the UK Financial Services Compensation Scheme (FSCS) up to £85,000 in the case of default.

2. Investing in government bonds is seen to be safer than investing in stocks as it is unlikely the UK government will default on its loans. However, anything can happen and with any form of investing you can lose your initial investment.

What are the Disadvantages of Short-term Investing?

1. Some higher-return short-term investments such as investing in stocks come with higher risk. It does take time to build up the experience and knowledge to invest in the best shares successfully.

2. Short-term investments in stocks can be prone to wild and random swings which are not suitable for all investors. Long-term investing may be more suitable for an investor but it can be challenging to find the right mix for an investment portfolio.

Conclusion

Short-term investments can offer investors flexibility in their financial portfolios. Products such as online savings accounts and bonds are considered to be some of the safer ways to invest - although, there is always the risk of loss if a bank or lender defaults. However, accounts that are backed by governments offer a higher level of safety. The rate of interest is also now more competitive than in recent years due to the rising interest rates. 

The stock market can also provide options for short-term and long-term investing strategies. It does require more skill, knowledge and experience and is considered higher risk than other short-term investments. This is because share prices can fluctuate wildly. A useful way to get started is to use a demo trading account when investing in stocks for the first time. This type of account allows you to buy and sell in a virtual environment which can help in building the right skills and understanding the emotions of investments going up and down in value.

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FAQs on the Best Short-Term Investments UK

 

 Which option is best for short-term investments?

The best investment for short term depends on the individual’s risk profile. The investments which carry the lowest risk will likely provide the lowest returns and the investments which carry the highest risk will most likely provide higher returns.

 

What are good short-term investments right now?

There are a range of investment options for individuals. This includes online savings accounts, government and corporate bonds, stocks and shares, mutual funds and many other financial instruments.

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The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admirals investment firms operating under the Admirals trademark (hereinafter “Admirals”). Before making any investment decisions please pay close attention to the following:

1. This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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4. The Analysis is prepared by an independent analyst, Jitan Solanki, (hereinafter “Author”) based on personal estimations.

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