1. High-yield savings accounts
A high-yield online savings account pays you interest on your cash balance. And just like a savings account earning pennies at your brick-and-mortar bank, high-yield online savings accounts are accessible vehicles for your cash. With fewer overhead costs, you can typically earn much higher interest rates at online banks. Plus, you can typically access the money by quickly transferring it to your primary bank or maybe even via an ATM.
2. Certificates of deposit
Certificates of deposit, or CDs, are issued by banks and generally offer a higher interest rate than savings accounts.
These federally insured time deposits have specific maturity dates that can range from several weeks to several years. Because these are “time deposits,” you cannot withdraw the money for a specified period of time without penalty.
3. Government bond funds
Government bond funds are mutual funds or ETFs that invest in debt securities issued by the U.S. government and its agencies.
The funds invest in debt instruments such as T-bills, T-notes, T-bonds, and mortgage-backed securities issued by government-sponsored enterprises like Fannie Mae and Freddie Mac. These government bond funds are well-suited for low-risk investors.
4. Short-term corporate bond funds
Corporations sometimes raise money by issuing bonds to investors, and these can be packaged into bond funds that own bonds issued by hundreds of corporations. Short-term bonds have an average maturity of one to five years, making them less susceptible to interest rate fluctuations than intermediate- or long-term bonds.
Corporate bond funds can be an excellent choice for investors looking for cash flow, such as retirees or those who want to reduce their overall portfolio risk but still earn a return.
5. Municipal bond funds
Municipal bond funds invest in several municipal bonds, or munis, issued by state and local governments. Earned interest is generally free of federal income taxes. It may also be exempt from state and local taxes, making them particularly attractive for investors in high-tax states or high tax brackets.
Muni bonds may be bought individually through a mutual fund or an exchange-traded fund. You can consult with a financial adviser to find the right investment type for you, but you may want to stick with those in your state or locality for additional tax advantages.
6. S&P 500 index funds
If you want to achieve higher returns than more traditional banking products or bonds, an S&P 500 index fund is a good alternative, though it does come with more volatility.
The fund is based on about five hundred of the largest American companies, meaning it comprises many of the most successful companies in the world. For example, Amazon and Berkshire Hathaway are two of the most prominent member companies in the index.
7. Dividend stock funds
Even your stock market investments can become a little safer with stocks that pay dividends.
Dividends are portions of a company’s profit that can be paid out to shareholders, usually every quarter. With a dividend stock, not only can you gain on your investment through long-term market appreciation, but you’ll also earn cash in the short term.
Whether they pay dividends or not, buying individual stocks is better suited for intermediate and advanced investors. But you can buy a group of them in a stock fund and reduce your risk.
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