With savings accounts paying practically nothing in interest these days, many people are choosing to put their money elsewhere in order to generate a more substantial return. But what if you’re the type of person who’s really afraid of losing money? After all, most investments carry a degree of risk, and if your tolerance for it is low, your options may be limited.
Traditionally, those who are truly risk-averse would make a point of avoiding the stock market, and while some stocks are safer bets than others, if the idea of losing money is enough to bring on a panic attack, you’re probably better off putting your money into something less volatile. Here are a few options to consider:
Certificates of Deposit, or CDs, are a relatively safe bet because they’re insured by the FDIC up to $250,000 per depositor. With a CD, you’re locking your money into a fixed rate for a predetermined period of time, but that return is guaranteed. Plus, you can pick the time period for investing that works best for you. If you’re afraid to tie up your money for a year or more, for example, you could open a 6-month CD and snag a better interest rate than what your savings account is offering.
Car title loans are quick, short-term loans that you can get using the equity in your car or vehicle. If you own your car, you can borrow money based on it’s resale value. You need to know that these loans are usually for 60 days or less.
A money market is a type of savings account that typically earns more interest than a regular savings account. Most money markets come with higher minimum balances than traditional savings accounts, and there are usually limits as to how often you can withdraw your funds. On the other hand, money markets, like CDs, are insured by the FDIC, so your first $250,000 is automatically safe.
Treasury bonds, or T-bonds, are bonds issued by the U.S. Department of the Treasury. U.S. Treasury bonds are considered to be virtually risk-free, and while they typically pay less interest than corporate bonds, their interest is exempt from state and local taxes.
Municipal bonds, or muni bonds, are bonds issued by states, cities, and other localities to pay for things like road repairs, hospitals, and school systems. As is the case for Treasury bonds, municipal bonds tend to offer lower interest rates than corporate bonds, but they’re also far less risky. Historically, the default rate for municipal bonds has been extremely low, which means if you purchase municipal bonds—especially those with a higher credit rating—you’re likely to get your principal and interest payments as scheduled. Plus, municipal bond interest is exempt from federal taxes and, in some cases, state and local taxes as well.
The one thing to keep in mind when it comes to investing is that the more risk you take on, the greater your potential to make money. If you’re years away from retirement and have a substantial amount of money on hand to invest, you may want to consider pushing yourself outside your comfort zone a bit in order to generate a better return.
If you do your research or invest with a trusted advisor, you can limit your risk while opening yourself up to a world of profit.