Retirement Investments Yielding 7% Or More: Exploring Your Options

There are several investment options for retirees that yield 7% or more. However, it's important to remember that generally, the higher the yield, the greater the risk. For example, HNDL, a balanced portfolio of low-cost ETFs, offers a 7% annual yield, but comes with twice the risk of the Vanguard Target Retirement Income Fund. Similarly, the JPMorgan Equity Premium Income ETF (JEPI) has an extraordinary 12% yield, but this is likely unsustainable in the long term. On the other hand, some investments with lower yields can be considered safer options. For instance, money market funds are typically stable and provide liquidity, while high-yield savings accounts are completely safe as they are government-insured.

High-yield savings accounts

UFB Direct: 5.25% APY

UFB Direct is an online bank and a division of Axos Bank. It offers high-yield savings, money market accounts (MMAs), and mortgages. With no minimum deposit requirement and zero monthly fees, this account is a great option for anyone looking to boost their savings. UFB Direct also has a massive ATM network of over 91,000 locations, a highly-rated mobile app, and 24/7 phone support.

Credit Karma Money Save: 5.10% APY

Credit Karma is a financial technology company that offers a range of products, including checking and savings accounts. With Credit Karma Money Save, you don't need to meet a minimum deposit requirement to open the account or pay monthly maintenance fees. You can enjoy a 5.10% APY, and the minimum balance needed to earn the APY is only a penny, so your savings will grow no matter the amount.

Varo Bank: 5.00% APY

Varo is an online-only bank offering products such as bank accounts and a credit card. With a Varo Bank account, you can earn a 5.00% APY on your savings, but you'll need to meet some qualifications first. To earn the 5.00% APY, you'll need to receive qualifying direct deposits of $1,000 or more in your account or have a positive balance on both your Varo bank and savings account. However, note that you'll only receive a 5.00% APY on balances up to $5,000. Any additional balance above that amount earns 3%.

My Banking Direct: 5.45% APY

My Banking Direct is an online-only bank and a division of Flagstar, one of the largest regional banks in the Midwest and California. With a 5.45% APY, no monthly fee, and only $1 needed to earn the APY, it's a highly accessible account. My Banking Direct also offers a free checking account and a five-month CD with an online renewal option.

Cloudbank 24/7: 5.22% APY

Cloudbank 24/7 is a digital bank backed by Third Coast Bank SSB, a community bank in Texas. It offers a high-yield savings account through Raisin, a digital marketplace that allows customers to compare accounts easily before applying. With a 5.22% APY and a minimum opening deposit of $1, opening a Cloud 24/7 savings account is simple. Interest is compounded daily and credited to your account at the end of each month, and deposits are FDIC-insured through Third Coast Bank.

Money market funds

The yields on money market funds can vary depending on the current interest rate environment and the fund's underlying holdings. As of May 12, 2024, the Fidelity Money Market Fund (SPRXX) offered a 5.02% seven-day SEC yield with a 0.42% expense ratio and no investment minimum. The Vanguard Federal Money Market Fund (VMFXX) is a government money market fund that pays a seven-day SEC yield of 5.26% with a 0.11% expense ratio but requires a $3,000 minimum investment.

When considering money market funds, it's essential to evaluate the fund's yield, expense ratio, minimum investment requirements, and the types of securities it invests in. Additionally, while money market funds are considered low-risk, it's important to remember that there is still a possibility of losing money, and they are not insured by the Federal Deposit Insurance Corporation (FDIC) like bank deposits.

Short-term certificates of deposit

CDs are a type of time deposit savings vehicle offered by banks and credit unions. They allow you to hold money for a specific amount of time, known as the term, while earning interest. The term can vary from as little as 28 or 30 days to 10 years or more. Generally, the longer the term, the higher the interest rate. With a short-term CD, your money isn't locked in for years, giving you the flexibility to add or withdraw money within a short time frame.

When you put money into a CD, you agree to leave it there until maturity. At the end of the term, you can withdraw the initial deposit and interest earned or roll the entire amount into a new CD account. While CDs typically have higher interest rates than other deposit accounts, they usually offer lower rates than long-term CDs. This is because banks often reward savers who choose long-term CDs.

It's important to note that withdrawing money from a CD before it matures can result in an early withdrawal penalty, which could be equal to some or all of the interest earned. Additionally, CD interest rates can be influenced by movements in the federal funds rate.

CDs are considered a safe investment option as they are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). This means that your deposits are protected up to a certain limit in the event that your bank or credit union fails.

Series I savings bonds

Electronic Series I Savings Bonds

Electronic Series I savings bonds can be purchased for any amount between $25 and $10,000. They can be bought through the TreasuryDirect application, which is the official US government application for buying and keeping savings bonds. You can also buy them through a Payroll Savings Plan, where your employer sends money from each paycheck directly to your TreasuryDirect account.

Paper Series I Savings Bonds

Paper Series I savings bonds can be purchased for any amount between $50 and $5,000 in $50 increments. The only way to get a paper savings bond is to use your IRS tax refund.

Interest Rates

The interest rate on a Series I savings bond changes every 6 months, based on inflation. The overall rate is calculated from a fixed rate and an inflation rate. The fixed rate never changes, while the inflation rate is reset every 6 months. Series I savings bonds issued between May 1, 2024, and October 31, 2024, have a fixed rate of 1.30%. Interest is compounded semiannually, and the bond earns interest for up to 30 years.

Cashing Out

You can cash out your Series I savings bond after 12 months, but if you do so before 5 years, you will lose the last 3 months of interest. You will have to wait to get all the money until you cash in the bond, and if you cash it in before 30 years, you will not receive the full interest amount.

Treasury bills, notes, bonds and TIPS

Treasury bills, notes, bonds, and TIPS are all US government-issued fixed-income securities. They are prized by conservative investors for their low risk and predictable income. While they are considered low-risk investments, they also have a lower potential return than alternative, riskier investments like stocks or corporate bonds.

Treasury Bills

Treasury bills (or T-bills) are short-term securities that mature in one year or less and are sold at face value or a discount. They do not pay interest. Instead, they are sold at a discount to their face value, and your return is the difference between the face value and the discounted price you initially paid. For example, if you buy a $1,000 face value T-bill for $950, your return is the $50 difference between what you paid and the face value you receive at maturity. T-bills are typically issued with maturity dates of four, eight, 13, 26, and 52 weeks.

Treasury Notes

Treasury notes (or T-notes) are medium-term securities, ranging from two to ten years. They pay interest every six months and are sold in increments of $100. The interest rate is set at auction, and the yield is usually lower than that of T-bonds. T-notes are also backed by the US government and are considered very low risk.

Treasury Bonds

Treasury bonds (or T-bonds) are long-term securities with maturity periods of more than ten years, typically 20 or 30 years. They are also sold in increments of $100 and pay interest every six months. T-bonds usually offer the highest coupons or interest rates because investors want more money when putting their money aside for the long term. They are also considered very low risk.

Treasury Inflation-Protected Securities (TIPS)

TIPS are inflation-indexed bonds with maturity periods of five, ten, or 30 years. They are unique because the principal goes up and down with inflation and deflation. The coupon rate is fixed at issuance, but the principal is adjusted periodically based on changes in the consumer price index (CPI). When the CPI rises, the principal is adjusted upward, and when the index falls, the principal is adjusted downward. This adjustment protects the holder's purchasing power and virtually guarantees a real return over the rate of inflation.

Frequently asked questions