The best places to store short-term savings

The continued low interest rates that have saved you money on a mortgage or student loan refinance have a downside: Cash that is stashed away in safe places — savings accounts, CDs, money markets — is probably not earning a notable return.

Money you need in less than five years generally shouldn’t be invested in the stock market, because that kind of time horizon isn’t long enough to recover from a downturn. So with that option off the table, it’s a struggle for short-term money to keep pace with inflation.

Until interest rates rise, that’s unlikely to change. In the meantime, you should strive to earn every cent possible without locking up your cash in a way that will prevent you from taking advantage of higher rates when they come. (For instance, say no to long-term CDs, which hit you with an interest penalty if you attempt to withdraw your investment before the end of the term.)

Where to put money you need in less than two years

Online savings or money market accounts
Potential interest rate: 1%

NerdWallet’s savings account search tool surfaces national account providers paying interest rates of 1% or more (check out our list of favorites here). That doesn’t sound like much until you compare it to 0.06%, the current national average interest rate on savings accounts, according to the FDIC — and what you’ll likely be offered at your hometown branch.

The same goes for money market accounts: Online you’ll see rates closer to 1%; FDIC data show the national average here is 0.08%.

Money market accounts are slightly different from savings accounts. They tend to have higher deposit requirements and come with checks and debit cards, but both are FDIC insured.

Where to put money you need in two to three years

Short-term bond funds
Potential interest rate: 1% or more, for those willing to take on more risk.

Bonds allow you to lend money to a company or government, which then pays you back with interest. They’re not risk-free: The borrower could default, and when interest rates rise, bond values typically go down.

To reduce the risk of default, choose bond funds that primarily own government bonds, which are issued by the U.S. government, and municipal bonds, which are issued by states and cities. These entities are unlikely to default. Investment-grade corporate bond funds will pay more but carry additional risk.

Sticking with short-term bond funds can help lessen the blow of a rising interest rate environment; you can sell a bond at any time, but those with longer durations take more of a hit when interest rates go up.

You can purchase a bond index fund or exchange traded fund via an online brokerageaccount. 

Where to put money you need in three to five years

Peer-to-peer loans
Potential interest rate: 5%

Online lenders like Prosper and Lending Club are options for investors who are willing to lend money to borrowers. The borrowers are people who need cash to fund things from home renovations to medical expenses.

On both sites, borrowers are classified by creditworthiness, which means you can limit risk — but not avoid it completely — by choosing to lend only to borrowers in the upper credit tiers. You’ll earn less in interest by focusing on these choice candidates, but the return is still substantially greater than with a savings account. Lending Club says historical returns on loans graded A are 5.23%; Prosper rates its top credit class AA and touts historical returns of 5.48%.

To lower risk further, diversify by spreading your loans around into small chunks, lending $25 or $50 to each candidate rather than, say, $2,500 to one. Both services say that investors who invest in 100 or more loans have close to a 100% chance of seeing positive returns.

When a borrower makes a payment, it is distributed to the loan’s investors and you can either withdraw or reinvest it. Loan terms start at three years and investors pay a small service fee on both platforms, which have minimum investments of $25.

Where to put money if you have high-interest rate debt

Pay down (or pay off) the debt
Potential interest rate: Your current debt interest rate

Want to earn 13%, 15% maybe even 18% return on your investment? Pay off high-interest rate debt.

When you pay off high-interest credit card debt, personal loans or other expensive debt, the return is equal to the interest rate you would’ve otherwise owed by paying that debt off slowly over time. If you can wipe out a $2,000 credit card balance at a 13% interest rate, you’ll save around $900 by not carrying that debt and making minimum payments with interest over five or six years. Best of all, directing your short-term cash toward this option gives you a guaranteed rate of return.

This is why many financial advisors suggest that people who have substantial savings and also credit card debt use at least a portion of that savings to pay it down.

This article first appeared at NerdWallet.