Spoiler alert: The best, short-term investments are actually savings strategies: a simple savings accounts for money needed soon, term deposits for medium-range goals, and offset or revolving credit mortgages for homeowners. Each option protects your money, while optimising the returns for the timeframes you have to work within.

Does Timeframe Really Matter?

Every dollar held in cash gets chewed up by inflation. For example, $1 at the start of 2020 only bought 83 cents’ worth of goods by the end of 2023. After Covid, many New Zealanders swung heavily into investing, hoping to stay ahead of the impacts of inflation. Here’s the problem with the “always invest everything” approach, however. For those who believe a dollar sitting idle is a missed opportunity, there can often be little regard for timeframes, or significant milestones that require cash. For anything less than 5–7 years, the risk with investing is that you can get caught out by volatility. Imagine parking your cash in an extra rental property in 2021, and finding yourself short of money today?

Takeaway: Growing your cash balance is not the aim with short-term investing, it’s about insulation from volatile markets.

When Should You Use a Savings Account?

Definition:
A savings account is a bank account for parking money you might need soon, with instant or near-instant access with very little risk*.

  • Use for funds you’ll spend in the next 12 months.

  • Perfect for things like parental leave, planned renovations, or life’s surprise expenses.

  • Forget outpacing inflation, and be grateful to receive at least some compensation from after-tax interest income. Don’t undervalue liquidity (the ability to convert your cash into anything) in when you don’t yet know your plans.

  • If you’ve been conditioned to “always invest”, a savings account feels like the slow lane. That’s okay though. Just ask the tortoise, sometimes slow is smart.

Motorway analogy: Stay in the left-lane for money that could need a quick exit.

How Do Term Deposits Work, and What Protection Do They Offer?

Definition:
A term deposit is a savings product locking in your money for a set period at a fixed rate. You give up some access to your savings, but you have more certainty.

  • Great for money with known future uses (a wedding, extended settlement, staged retirement costs).

  • Laddering (e.g. 12, 18, 24 months) means not all your money comes due at once.

  • Beware that early withdrawal usually cuts your interest, so always match the term with your plan.

  • *Under the Depositor Compensation Scheme (DCS), up to $100,000 per bank/person is ‘protected’. Putting aside the shortfalls of using the NZD (inflation), ever saver takes some degree of risk with using a financial institution (bank). The DCS has now reduced this risk somewhat.

  • For more than $100k, spread funds across banks. A tool like InvestNow lets you access multiple banks under one login, making this a bit easier.

Motorway analogy: The middle lane is for cash needed 1–3 years out, especially if timing is crystal clear.

The Ultimate Short-Term “Investment”: Mortgage Offset or Revolving Credit Facilities.

Definition:
Offset and revolving credit mortgages let you park savings against your loan, reducing your interest bill, with money accessible if needed.

  • If you’ve got a mortgage and your cash is less than your loan, this option often trumps standard savings accounts, term deposits, and even investing.

  • You earn a “return” equal to your mortgage rate just by reducing your interest bill (risk-free, no market swings).

  • At today’s 6% floating rate, for example, if you were on a 28% tax rate, you’d need a return of almost 9% pre-tax on your investments. You might be able to achieve this, but in the short term, why take the chance?

  • You do need the right mortgage setup for this option, so if your unsure, talk to a mortgage adviser.

Motorway analogy: Use the lane if you’re a homeowners with a mortgage, and performance really matters.

Recent Inflation Is A Wake-Up Call Around How The Game Works.

Key fact:
After the pandemic, inflation hit us in stages. Assets first (property, shares, and crypto, for example), and consumer goods later. If you were invested before March of 2020 and you stayed the course, you did well. If you kept on putting all your cash into investments, thinking it would go on forever, you potentially got in a little trouble.

Take property prices in NZ, for example. Adjusted for inflation, which nobody seems to do, we’ve suffered (in my view) one of the worst corrections since the late 1990’s. For over a decade we saw that property “only” went up. Combined with the fact it feels like a tangible investment, many holders of short term cash decided to buy a unit to make some ‘easy’ gains. In had some clients during this time determined to hold a property for 3 years, just to make the gains needed to fund their renovations. Term deposits would have been better.

  • The urge to invest every spare dollar is strong, but timing matters. Generally, never lock up short-term money in long-term investment vehicles.

  • True wealth comes from a match between your savings strategy and when you need the money.

  • Keeping cash in savings can be a lazy, ultra-conservative, and ultimately, expensive long-term retirement strategy, but in the short-term, it’s wisdom.

Final Thoughts

If you treat every dollar like it belongs on Wall Street, be careful, because there’s nothing worse looking for more work on Main Street, because you lost money investing. Volatility isn’t your friend when you need to pull out money early. Sometimes the comfort-seeker is right; a healthy savings account is no shame.

Big money calls are nuanced, with real dollar consequences. Want to chat about your plan? Let’s have a no-strings chat to see how I can help you make the most of your savings, no matter your destination.