Are you looking for a safe place to stash some cash? Do you want to invest money and not worry about losing it? While stocks and bonds can experience significant declines in value, many government securities are guaranteed and can only increase in value. The following investments are risk free and guaranteed by the Federal government. The only risk that exists is if the U.S. government defaults on its securities which has never happened in U.S. history. Here are five safe investments for your money:
1. Savings Account/Money Market Account
A savings account is the most liquid investment that you can have. Money is readily available and easy to withdraw. Just make sure that your savings account is FDIC insured. FDIC insurance guarantees your savings account up to $250,000. You can find some great high yield savings accounts online. All savings accounts allow up to six withdrawals a month. You can earn higher interest rates at traditional banks if you have $10,000 or more to invest. Money market accounts require $1,000 to open and pay slightly higher rates than savings accounts.
2. Savings Bond
Savings bonds come in two principal variations: EE bonds and “I” bonds. EE bonds are fixed rate bonds that pay a guaranteed rate of interest for 30 years. The main advantage is that the face value is double the price paid for the bond. It only costs $25 to buy a $50 bond. If you hold it to maturity you will receive the full $50. EE bonds are currently paying 1.20% interest. “I” bonds are inflation indexed bonds. The interest rate changes every 6 months on an “I” bond. If you think that inflation is going to continually rise, these are a great investment. “I” bonds can be redeemed after one year and are currently paying 3.36% interest annually.
3. Certificate of Deposit
A certificate of deposit is a great tool to use when saving money for a purchase such as a house down payment or a car. CD’s pay a higher interest rate than a savings account but are less liquid than a savings account. You can get a CD with a term as short as 3 months or one with a term as long as 10 years. Building a CD ladder is a great strategy for maximizing your income and freeing up money every year. Here’s how a CD ladder works. You buy multiple CDs at one time but with different maturity dates. Buy a 1 year, 2 year, 3 year, 4 year, and 5 year CD. Your CDs will mature every year giving you the option to cash out or roll it over into a new CD. Every year you will have a CD maturing and can roll the cash over to take advantage of rising interest rates.
4. Treasury Bill
Not a lot of people are aware of Treasury bills. T-bills are short-term securities that mature in less than one year. You can buy a 4 week, 13 week, 26 week or 52 week bill. T-bills don’t pay interest but are sold at a discount to their face value. The face value of a Treasury bill is $1,000. T-bills are bought via an auction process. For example, let’s say you bought a $1,000 Treasury bill at a price of $950, than you would receive the full $1,000 when you redeem the bond. You would have earned $50 in interest giving you an effective yield of 5.2%. You can buy a T-bill through your local bank, broker or the TreasuryDirect website.
5. Treasury Bond
Treasury bonds are the exact opposites of T-bills. Treasury bonds are long-term securities that have a maturity date of 30 years. They pay interest every six months and are sold in lots of $100 dollars. Treasury bonds are great for locking in a high rate of interest for an extended time period. You can currently purchase a 30 year treasury bond yielding almost 5%.
For long-term retirement growth, we don’t recommend you put a lot of your money in these investments. But, if you’d like to put 10 to 15% of your portfolio in these types of accounts as a safeguard to inflation or the varying changes of the stock market, you should consider these options. Always consult a financial advisor that you trust to help explain these investments to you further before you invest in them.
(Photo credit: M. Kelley)