Is a recession coming? The experts can’t agree, but they do agree inflation is likely with us for the next year, and with a volatile market, investors are looking for safe bets. Here are 3 investments that are virtually risk-free.
A certificate of deposit (CD) is essentially an interest-bearing savings account that holds a fixed amount of money for a fixed period of time, such as six months, one year, two years, or five years. The issuing bank pays interest on the deposit.
When you redeem your CD, the bank will pay back the amount you originally invested, plus the interest you accrued.
Purchasing a CD through a federally insured bank means the amount of money you invested is insured up to $250,000. This makes your investment risk-free. You won’t lose money, only make money.
There is a payoff for low risk, and that is a lower return as compared to other high-return, higher-risk investments. Nonetheless, CDs are excellent investments for predictable short-term goals.
The downsides are that if you withdraw your money before the allotted time, you will pay penalties and you won’t draw the entire interest you would have earned. Another risk is that inflation may increase faster than your money. For example, earning 2% interest, but inflation rises 3% over that time period.
Like a certificate of deposit (CD), a money market account is an interest-bearing account you can open at banks and credit unions. While they are very similar to saving accounts, they offer some checking and debit card features as well, according to Bankrate.
For investors, they accrue monthly interest payments like CDs, but they add flexibility by not having your money locked up for defined periods of time.
Money market accounts are an excellent place to store your money for short-term goals, such as three-to-six months of emergency funds while earning interest, US News reports.
Like CDs, you want to open your account at an institution that is federally insured up to $250,000.
There is a trade-off for flexibility of avoiding lockup periods with your money in the form of lower interest rates/annual percentage yield (APY).
Issued by the US treasury, Series I savings bonds are being referred to as “inflation proof” because they are inflation-indexed and are virtually risk-free, being federally guaranteed.
Through October 2022, Series I savings bonds are paying an above-inflation rate of 9.62 percent interest.
Unlike CDs or money market accounts, these aren’t a place for short-term investments, but rather those of 5 years or longer. The upside is that you can hold these bonds for 30 years.
To purchase Series I savings bonds, set up an account at TreasuryDirect.gov.
Get more info here: Series I savings bonds
You must be a US citizen, or US resident, or civilian US government employee. Trusts and estates can purchase the bonds in some cases, but not corporations, partnerships or other organizations, according to Bankrate.
You can’t cash in an I bond for at least a year. If you cash the bond before 5 years, you lose the previous three months of interest.
You must pay federal income taxes on the interest.
Individuals are limited to a purchase of up to $10,000 in electronic I bonds each calendar year. However, you can also buy up to $5000 in paper I bonds using your federal income tax refund.