Reliable Retirement: Exploring The Safest Investment Options

What are the safest investments for retirement?

When it comes to retirement, investing in low-risk assets is a great option for conservative investors who want to protect their money from potential losses while still benefiting from modest growth. While low-risk generally means sacrificing high returns, safer investment options can help retirees combat inflation and secure their savings. Here are some of the safest investments for retirement:

- Money Market Accounts: These are savings accounts that allow spending directly from the account. They are FDIC-insured, guaranteeing deposits of up to $250,000 per institution per investor. Current returns can be up to 5% or more.

- Online High-Yield Savings Accounts: These accounts are similar to typical savings accounts but offer higher APYs by operating strictly online. They are also FDIC-insured. Returns can be up to 5% or more.

- Cash Management Accounts: These accounts, offered by non-bank financial institutions, provide easy money transfers between investing and cash management accounts. They are FDIC-insured through partnerships with banks and can offer returns of around 5% or more.

- Certificates of Deposit (CDs): CDs offer a fixed interest rate for a specified period, and the initial investment is typically insured by the Federal Deposit Insurance Corporation (FDIC). Returns can be around 5% on the high end.

- Treasury Notes, Bills, and Bonds: These are considered the lowest-risk investments as they are backed by the full faith and credit of the US government. Treasury yields are currently at recent highs.

- Bonds: Fixed-income securities issued by governments and corporations. They offer income stability through regular interest payments and lower risk compared to stocks.

- Dividend-Paying Stocks: Shares in established companies that distribute profits to shareholders, offering a consistent income stream and the potential for capital appreciation.

- Annuities: Insurance contracts that provide a guaranteed income stream with tax-deferred growth. However, they often come with fees and may limit liquidity.

- Balanced Funds: Mutual funds that own portfolios of stocks and fixed-income assets, focusing on dividends and interest income.

High-yield savings accounts

The APY on high-yield savings accounts is often well above the national average for traditional savings accounts. In July 2024, the national average APY for a traditional savings account was 0.45%, while some high-yield savings accounts offered rates of 5% or more.

It's important to note that the APY on high-yield savings accounts can fluctuate. They are sensitive to changes in the economy, and your bank may raise or lower rates based on changes in the federal funds rate.

When choosing a high-yield savings account, it's important to shop around for a lucrative APY, consider the requirements for opening an account, read the fine print on fees, and review access limits and customer service options.

• UFB Direct: 5.25% APY, no minimum deposit requirement, zero monthly fees, access to over 91,000 ATMs, highly-rated mobile app, 24/7 phone support
• Credit Karma Money Save: 5.10% APY, no minimum deposit requirement, no monthly maintenance fee, online help centre, online browser and app access
• Varo Bank: 5.00% APY (3% APY if requirements not met), qualifying direct deposits of $1,000 or more, positive balance on both Varo bank and savings accounts, savings tools such as a round-up feature
• My Banking Direct: 5.45% APY, no monthly fee, $1 needed to earn APY, $500 minimum opening deposit, mobile banking and automatic deposits, unlimited transactions, highly-rated mobile app
• Cloudbank 24/7: 5.22% APY, $1,000 minimum opening deposit, contact customer service via email, phone, or secure messaging, mobile app with account balance viewing, money transfer, and mobile check deposit

Money market accounts

Retirement money market accounts specifically are meant to be a temporary holding point for cash before it is invested in securities with higher potential returns. While the funds in these accounts are stable and liquid, the return on investment tends to be very low compared to other investments. Therefore, it is important to move your money into other investments to maximize your retirement savings.

Online savings accounts

Traditional Savings Accounts

Traditional savings accounts are a good option if you're looking for easy access to your money. They typically have lower balance requirements and let you create multiple savings goals. However, they may have monthly maintenance fees, so be sure to check the terms before opening an account.

Money Market Accounts

Money market accounts offer greater interest-earning power than traditional savings accounts. They also provide benefits similar to a checking account, such as the ability to write checks or use a debit card. This makes them a good option if you want to use the account for more than just saving. Like traditional savings accounts, money market accounts usually have monthly maintenance fees, so be sure to factor that into your decision.

Certificates of Deposit (CDs)

CDs offer a higher interest rate than traditional savings accounts, but you must leave your money untouched for an agreed-upon time period. They are a good choice if you have some money in savings that you're unlikely to need right away. When choosing a CD, be sure to compare rates and terms from different banks to get the best deal.

Advantages of Online Savings Accounts

• Easy to set up and manage through mobile and online banking
• Interest earned on your savings
• Easy access to funds through transfers or a large ATM network
• Protection of the Federal Deposit Insurance Corporation (FDIC) for savings accounts at most banks
• Low or no maintenance fees, especially if you have a checking account with the same bank
• Customizable account alerts to keep you informed about important account activity

Disadvantages of Online Savings Accounts

There are also a few potential drawbacks to consider:

• Limited to no physical branch access, depending on the bank
• May have monthly maintenance fees
• Interest rates may change in response to market conditions, affecting your earnings
• Limited to a certain number of transactions per month, with fines for exceeding this limit

Certificates of deposit

CDs are a safer and more conservative investment than stocks and bonds, but they offer a lower opportunity for growth. They are insured by the Federal Deposit Insurance Corporation (FDIC) if they are issued by an FDIC-insured bank. The FDIC insures bank accounts, and the National Credit Union Administration (NCUA) insures credit union accounts. In both cases, up to $250,000 of your funds are protected in the rare event that the institution fails.

CDs are an attractive option for savers who want to earn more than most savings, checking, or money market accounts without taking on more risk. They are also a good option if you want some of your savings invested conservatively. It can help you achieve lower risk and volatility than investing in the stock and bond markets.

CDs come in a variety of terms, from 3-, 6-, or 12-months to 4-, 5-, and even 10-year terms. The top CD rates can be three to four times higher than the national average rate. Generally, the longer the terms, the higher the rates.

When opening a CD, consider the interest rate, term, principal, and financial institution. The interest rate is usually fixed, though there are variable-rate CDs that could earn a higher return if rates rise. The term is the length of time that you agree to leave your funds deposited to avoid any penalty. The principal is the amount that you agree to deposit when you open the CD. The financial institution sets factors such as early withdrawal penalties (EWPs) and whether your CD will default to being automatically reinvested at maturity.

CDs are one of the safest ways to invest your money. In addition to their federal insurance, their rate is fixed and guaranteed. However, one of the downsides of CDs is that your money is locked into the investment.

CDs are usually insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000. This means that even if the bank or credit union went bankrupt, your principal would very likely still be repaid. For these reasons, CDs are considered one of the safest investments available.

Treasury notes

The interest income from Treasury notes is subject to federal income tax but is exempt from state and local income taxes.

Frequently asked questions