Invest Your Savings: Safe Strategies For Beginners

Investing your savings can be a great way to build wealth over time. However, there is no one-size-fits-all approach, and it's important to consider your budget, risk tolerance, and investment goals when deciding where to invest your money. Here are some safe investment options to get you started:

- High-yield savings accounts: These accounts offer a modest return on your money, typically between 4% to 5%, and are insured by the Federal Deposit Insurance Corp. up to $250,000.

- Money market accounts: Similar to savings accounts, money market accounts often offer higher interest rates and provide features like debit cards and check writing. However, there may be limits on the number of monthly withdrawals.

- Certificates of Deposit (CDs): CDs are considered low-risk investments as they are FDIC-insured and offer guaranteed returns. However, there may be penalties for early withdrawal.

- Treasury Inflation-Protected Securities (TIPS): TIPS are government bonds that protect your money from inflation. The value of your principal adjusts based on the current rate of CPI inflation, ensuring your investment keeps pace with rising prices.

- Investment-grade corporate bonds: These are fixed-income securities issued by large, profitable companies and are considered relatively low-risk compared to other types of bonds.

High-yield savings accounts

Most high-yield savings accounts are offered by online banks, fintechs or credit unions, but some traditional banks also offer them. These accounts are federally insured by either the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) for up to $250,000. This means that your money is safe, even if the financial institution fails.

While high-yield savings accounts are a great option for those looking to earn a competitive yield on their savings, it's important to compare APYs and fees when choosing one. Some high-yield savings accounts may have tougher requirements than a typical savings account, such as larger deposits to qualify to open the account. They may also be a bit harder to access, with a limit of six withdrawals per month and a delay of a couple of days to transfer funds to your checking account.

• Western Alliance Bank High-Yield Savings Account: This account offers a high APY with a minimum deposit of only $1 and no monthly fees or overdraft charges.
• LendingClub LevelUp Savings Account: This account offers a competitive APY, a free ATM card with no fees, and the option to earn an even higher APY with monthly deposits of at least $250.
• Capital One 360 Performance Savings: This account offers an APY that rivals that of online banks, with no monthly fees or minimum balance requirements, and over 70,000 fee-free ATMs.

Money market accounts

Discover® Money Market Account

The Discover® Money Market Account is the best money market account according to Forbes Advisor, earning a 5-star rating thanks to a competitive yield, few fees and lack of a minimum balance requirement. The account earns 3.80% for balances up to $100,000 and 3.85% for balances above $100,000. It provides a well-rounded account that checks many boxes, including a good yield and no fees. Discover also scores well on customer service metrics, and you’ll have access to 60,000 ATMs.

Quontic Money Market Account

Quontic Bank has a money market account that offers a competitive yield. The account only requires a $100 minimum opening deposit and comes with a debit card. The bank also offers Zelle for sending money to others and has mobile deposit. Savers earn a healthy interest rate of 5.00% annual percentage yield, and there is no maintenance fee.

Vio Bank Cornerstone Money Market Account

The Vio Bank Cornerstone Money Market Savings Account earns 5.05% APY on all balances. There is a $100 minimum to open and no monthly fee. Customer service is available by phone seven days a week.

Sallie Mae Money Market Account

The Sallie Mae Money Market Account comes with check-writing privileges and doesn’t require a minimum opening deposit. The money market account also doesn’t have a monthly service fee. Customer service is available weekdays from 9 a.m. to 6 p.m. ET.

Ally Bank Money Market Account

The Ally Bank Money Market Account earns 4.00% across all balance tiers. There is no monthly fee or minimum amount required to open an account. This account offers a debit card and the ability to write cheques. Customer service is available 24 hours a day, seven days a week.

Zynlo Money Market Account

While Zynlo Bank doesn’t have any branches, it does have customer service representatives available by phone 24 hours a day, seven days a week. Services are backed by PeoplesBank, which is based in Massachusetts. Zynlo's money market account earns 5.00% APY on balances up to $250,000, and 0.10% APY on amounts above that level. There is a $10 minimum deposit to open an account and no monthly fees.

EverBank Performance Money Market

The EverBank Performance Money Market lets account holders earn a 4.00% APY on balances between $50,000 and under $100,000. The account offers tiered rates, so for balances of $100,000 and up the APY is higher, and for balances below that amount the APY is lower. There is no minimum amount to open an account, and there is also no monthly fee. EverBank does not charge ATM fees and will reimburse any ATM fees charged by the machine owner, up to $15 each month.

First Foundation Bank Online Money Market

First Foundation Bank’s Online Money Market account earns a 4.90% APY. You’ll need $1,000 to open an account. After that, there is no monthly fee, even if the balance dips below $1,000. A debit card is available upon request. This account also has check-writing privileges. Customer service is available by phone Monday through Thursday 5 a.m. to 8 p.m. PT, Fridays from 5 a.m. to 6 p.m. PT and Saturdays from 6 a.m. to 2:30 p.m. PT.

Short-term bond funds

When you buy a bond, you are effectively giving the issuer a loan for a set duration. The issuer pays you a predetermined interest rate at set intervals until the bond matures, at which point they pay back the bond's face value.

A short-term bond fund can be a good place to invest money that you may need in the next few years. They are not risk-free, but they are safer than investing in high-yield bonds or the stock market.

When considering a short-term bond fund, pay attention to the fund's expense ratio, or fee. The lower the expense ratio, the better. Some examples of short-term bond funds with low expense ratios include:

• SPDR Portfolio Short-Term Corporate Bond ETF (SPSB)
• IShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB)
• Schwab 1-5 Year Corporate Bond ETF (SCHJ)
• Vanguard Short-Term Bond ETF (BSV)
• Fidelity Short-Term Bond Fund (FSHBX)

Treasury Inflation-Protected Securities (TIPS)

The value of the principal on a TIPS bond can fluctuate, rising or falling over the term of the security depending on the current rate of CPI inflation. The interest rate on each security is fixed, but as the principal value changes, so too do the interest payments.

At maturity, if the principal is higher than your original investment, you keep the increased amount. If the principal is equal to or lower than your original investment, you will receive the original amount back. Interest is paid every six months, based on the adjusted principal.

TIPS can be purchased directly from the U.S. government through the TreasuryDirect system, in $100 increments with a minimum investment of $100. They can also be purchased through a TIPS mutual fund or exchange-traded fund (ETF).

TIPS are considered a low-risk investment. They are highly liquid securities that can be bought and sold with relative ease in the secondary market. They are also exempt from state and local income taxes.

However, TIPS typically offer lower yields compared to other types of bonds. This is because they tend to carry less risk. Additionally, the taxation of inflation adjustments can be a disadvantage, as the principal value increases are considered taxable income in the year they occur, even though investors do not receive this amount until the security matures or is sold.

S&P 500 index funds/ETFs

How S&P 500 ETFs Work

The financial institution managing the ETF buys stock in every company listed in the index, using the same weighting that the index uses. The investor's money will rise or fall with the S&P 500. The result is an ETF that tracks the S&P 500 almost perfectly.

Popular S&P 500 ETFs

• SPY: The State Street SPDR S&P 500 ETF was the original ETF and remains one of the most liquid S&P ETFs. It has a relatively high expense ratio of 0.0945%.
• VOO: Vanguard's main S&P 500 ETF. Like most of Vanguard's passive index offerings, VOO has a very low expense ratio of 0.03%.
• IVV: iShares' S&P 500 ETF is comparable to the Vanguard product, with the same 0.03% expense ratio.
• SPLG: State Street issued the SPDR Portfolio S&P 500 ETF (SPLG) in response to the lower fees offered by its competitors; it carries a 0.02% expense ratio.
• SPUU & SPXL: Managed by Direxion, these are leveraged S&P 500 ETFs. SPUU is 2x leveraged and SPXL is 3x leveraged. The leverage is bullish, meaning they anticipate an upward move in the index.
• SPDN & SPXS: Direxion offers these 2x and 3x leveraged ETFs. These are bearish leverages, meaning they anticipate a decline in the S&P 500.

Best S&P 500 ETFs to Invest In

• SPDR S&P 500 ETF: With a 0.0945% expense ratio, this ETF is one of the most liquid S&P ETFs and is also one of the most active for options traders.
• Vanguard S&P 500 ETF: With a very low expense ratio of 0.03%, this ETF is backed by Vanguard, one of the powerhouses of the fund industry.
• IShares Core S&P 500 ETF: This ETF is sponsored by BlackRock, one of the largest fund companies. It has an inception date of 2000 and has tracked the index closely over time. It has a 0.03% expense ratio.
• SPDR Portfolio S&P 500 ETF: Issued by State Street in response to lower fees offered by competitors, this ETF carries a 0.02% expense ratio.

How to Invest in an S&P 500 Index Fund in 3 Easy Steps

• Research and analyse index funds: Consider the geographic location, business sector and market opportunity of the fund.
• Decide which index fund to buy: Compare the expenses of each fund and consider tax efficiency and investment minimums.
• Purchase your index fund: Buy directly from the fund company or through a broker.

Frequently asked questions