Low-Risk Investment Options: Safe And Secure

Low-risk investments are a great way to grow your money without the chance of losing it. These investments are perfect for those who are risk-averse or nearing retirement. While they may not provide the high returns of riskier assets, they play a crucial role in a diversified portfolio by offering stability, predictable income, and protection against market volatility. Some examples of low-risk investments include savings accounts, cash ISAs, annuities, government bonds, and protected funds.

High-yield savings accounts

The best high-yield savings accounts have strong interest rates, good perks, and national accessibility. They are also federally insured by the FDIC or NCUA, which means your money will be safe. As of February 2025, the highest savings rates land between 4% to 5% APY.

When choosing a high-yield savings account, look for one with no monthly maintenance fees and low minimum opening deposits. You should also consider the overall customer experience at the bank, such as whether they offer 24/7 customer support and whether they have physical branches or are online-only.

• DCU Primary Savings Account: 0.05% to 6.17% APY
• Varo Savings Account: 2.50% to 5.00% APY
• Axos ONE Savings and Checking Bundle: up to 4.86% APY
• Openbank High Yield Savings: 4.75% APY
• Pibank Savings: 4.60% APY
• Newtek Bank Personal High Yield Savings Account: 4.55% APY
• BrioDirect High-Yield Savings Account: 4.55% APY
• Jenius Savings Account: 4.50% APY
• Barclays Tiered Savings: 4.25% to 4.50% APY
• LendingClub LevelUp Savings Account: up to 4.50% APY

Money market funds

• Treasury and government securities
• Commercial paper
• Municipal debt
• Cash and government securities
• Floating-rate debt issued by corporations and financial institutions
• Repurchase agreements

• Government funds: Invest in cash, U.S. Treasury securities, and repurchase agreements that are collateralized by U.S. Treasury securities.
• Prime or general-purpose funds: Invest in government securities, commercial paper, certificates of deposit, short-term securities issued by domestic and foreign corporations, and repurchase and reverse repurchase agreements.
• Municipal or tax-exempt funds: Invest primarily in securities that are exempt from federal income tax.

When choosing a money market fund, it is important to consider factors such as yield, expense ratio, type of fund, and additional fees.

Short-term certificates of deposit

When you open a CD account, you agree to keep your money deposited for a set amount of time, known as the term. In exchange, the bank pays a fixed interest rate that is typically higher than the rates offered on savings accounts. This interest rate is known as the annual percentage yield (APY) and is calculated by taking into account the compounding of interest. The frequency of compounding interest can vary between different CDs, affecting the overall APY.

CDs are considered low-risk because they are insured, typically up to $250,000, by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Association (NCUA). This means that your initial deposit is protected, and you are guaranteed to get back your principal plus any interest that has accrued when the CD matures.

However, it's important to note that if you need to withdraw your money before the CD's term ends, you will likely have to pay an early withdrawal penalty. This penalty can significantly reduce the interest you have earned and is usually calculated as a number of days or months' worth of interest. Therefore, it is essential to consider your savings goals and time horizon before investing in a CD. If you anticipate needing access to your funds in the short term, a savings account or a no-penalty CD may be a more suitable option.

Overall, short-term CDs are a great option for those seeking a low-risk investment with competitive interest rates. They can be a valuable tool for achieving savings goals and can also be part of a diversified investment portfolio.

Cash management accounts

Wealthfront Cash Account

The Wealthfront Cash Account offers a competitive 4.00% APY with no fees. It provides customers with a debit card, access to over 19,000 fee-free ATMs, and the ability to make purchases, pay bills, and link to apps such as Venmo and Cash App. It also offers direct deposits with payments of up to two days in advance and provides up to $8 million in FDIC insurance coverage through partner banks.

Betterment Cash Reserve

The Betterment Cash Reserve offers a promotional rate of 4.50% APY for three months for new account holders who fund their accounts within 14 days of opening. After the promotion ends, the rate remains competitive at 4.00%. This account has no fees or minimum balance requirements, and individual accounts receive up to $2 million in FDIC insurance coverage through partner banks. It also offers a companion Betterment Checking account, which includes a debit card and reimburses ATM fees worldwide.

Empower Personal Cash

Empower Personal Cash (formerly Personal Capital Cash) offers a competitive 4.70% APY, robust budgeting features through its mobile apps, and no fees or minimum balance requirements. However, it currently does not support cash deposits, cash withdrawals, or check writing, and only supports electronic transfers, wire transfers, and direct deposits.

Vanguard Cash Plus Account

The Vanguard Cash Plus account offers a high-yield interest rate with no minimum balance requirements and no fees if you sign up for e-statements; otherwise, there is an annual fee of $25. Customers can get up to $1.25 million in FDIC insurance on individual accounts through partner banks.

Fidelity Cash Management Account

The Fidelity Cash Management Account has no monthly fees or minimum balance requirements and offers unlimited ATM fee reimbursement and free check writing. It provides FDIC insurance of up to $5 million through partner banks. Fidelity also gives customers the option to add a debit card or bill pay to their existing brokerage account.

Charles Schwab Cash Management Account

The Charles Schwab cash management account has no monthly fees or account minimums and offers unlimited ATM fee rebates worldwide if you use the associated debit card. It also does not charge foreign transaction fees. However, its interest rate is not as competitive as some of the other CMAs mentioned. To open this account, you will need to have a Schwab brokerage account, but you can open one simultaneously without incurring fees.

Dividend-paying stocks

One of the key benefits of dividend-paying stocks is that they tend to be issued by well-established, mature companies that are more stable and have a higher quality business model. These companies are often financially sound, with strong cash flows that enable them to pay out dividends consistently. As such, dividend-paying stocks are generally considered lower-risk investments compared to other equity investments.

When considering dividend-paying stocks, it's important to evaluate the dividend yield and payout ratio. A high dividend yield can sometimes indicate that the payout is unsustainable or that the stock price is declining. On the other hand, companies with consistently increasing dividends tend to be more stable and reliable in their dividend payments. It's also crucial to assess the company's financial health and ensure that the dividend is not funded by excessive debt, which could hurt its growth prospects.

Overall, dividend-paying stocks can be a valuable component of a well-diversified investment portfolio. They provide a stable income stream, help reduce volatility, and offer the potential for capital appreciation. However, it's important to carefully evaluate each company's financial health, dividend history, and future growth prospects before investing.

Frequently asked questions