Investing is a way to increase your wealth based on your risk tolerance and time horizon
The best investments for low-risk investors looking for moderate returns are index funds, government bonds, and high-yield savings accounts
The best investments for high-risk investors that want high returns are individual stocks, real estate, and cryptocurrencies
Investing is one of the best ways to grow your wealth and improve your financial future. One of the keys to finding the best investments is to recognize the power of compound interest. The credit bureau Experian® describes compound interest as “when interest gets added to the principal amount invested or borrowed, and then the interest rate applies to the new (larger) principal.”
There are many ways you can invest, and some investments earn more than others, and some investments are riskier than others. Today, you’re going to learn about the nine best investments in 2023 based on average returns as well as your personal risk tolerance.
The investing information provided is for educational purposes only. We recommend consulting a financial professional before investing.
The best investments
The best investments right now to grow your wealth include:
High-yield Savings Accounts
Short-term Certificates of Deposit (CDs)
Government Bonds
Corporate Bonds
Real Estate and REITs
Individual Stocks
Index Funds
Exchange-traded Funds (ETFs)
Cryptocurrency
1. High-yield Savings Accounts
High-yield savings accounts are similar to a regular savings account, but you’ll often earn more interest by keeping your money in one of these accounts. You can sign up for a high-yield savings account through many banks and credit unions, and some accounts can earn you anywhere from three to four percent annually.
If you have or plan on making an emergency fund, Javier Simon from SmartAsset recommends using one of these accounts. “Anyone looking to open a rainy day or emergency fund that provides a higher-than-average interest rate and high liquidity should consider a high-yield savings account,” writes Simon. You’re saving anyway, so why not make money from storing your funds?
Best investment for: People with lower risk tolerance and who are good at saving. This is one of the safest investments with high returns because many banks are FDIC insured, so even if the economy has a downturn, your money is backed by the government.
Risk level: Very low
How to invest: Banks, credit unions, and online banks
Potential returns: Moderate
2. Short-term Certificates of Deposit (CDs)
When looking for where to invest money, many people turn to certificates of deposit, which are also known as CDs. Like high-yield savings accounts, CDs are another type of account. CDs work by allowing you to deposit your money with the caveat that you don’t withdraw the money for a certain amount of time. Once that time frame expires, you’ll receive your money back as well as the interest.
Best investment for: People willing to store their money for one, three, or five years, which are the average predetermined time frames. Just remember, unlike a savings account, there’s a fee for withdrawing your money early.
Risk level: Very low
How to invest: Banks and credit unions
Potential returns: Moderate returns that sometimes exceed those of high-yield savings accounts
3. Government Bonds
Sometimes, the government needs to borrow money, so they offer people the option to loan them money via government bonds. Like CDs, these bonds are for a specified period, but they provide regular payments. Peoples sometimes use bonds as one of the best passive income investments due to these payments.
One caveat to note is the return on government bonds varies depending on how the economy is doing.
Best investment for: People with a low risk tolerance often buy government bonds. Unless the government fails, there’s not much that will prevent getting your return from this investment. Unlike other investments, government bonds can last for up to 30 years.
Risk level: Very low
How to invest: The United States Treasury or through a stock broker
Potential returns: Low
4. Corporate Bonds
Like government bonds, corporate bonds are loans, but you’re providing that loan to a company. This investment helps companies that need money to invest in new products and expand their business. Since these aren’t backed by the government, they can be riskier because the company may go out of business. Although these have a higher risk, they also have a higher return than government bonds.
Best investment for: Individuals with a higher risk tolerance and are looking for higher returns may want to invest in corporate bonds. These bonds pay out regularly, and they’re a safer investment when buying bonds from large, stable companies that have been around for a while.
Risk level: Moderate to high
How to invest: Stock brokerages
Potential returns: High
5. Real Estate and REITs
One of the investment ideas many people turn to is real estate because it can provide extremely high returns when the housing market is good. The downside is that when the housing market has a downturn, as we saw in 2008, people experience big losses.
Rather than investing in real estate, you can invest in real estate stocks, which are called real estate investment trusts (REITs). These stocks are for companies that own properties like malls, office buildings, and other forms of real estate that generate revenue. These can be slightly less risky but still have some risk due to the nature of real estate.
Best investment for: Those who are looking for high returns or have a diversified portfolio already and can weather some higher-risk investments.
Risk level: High
How to invest: Mortgage broker for real estate and stock brokerages for REITs
Potential returns: High
6. Individual Stocks
Individual stocks are available to everyone, and when the average person buys these types of stocks, they’re known as “retail investors.” You may have heard of retail investors investing in individual stocks during the GameStop stock hype of 2021, which also showed how risky individual stocks can be.
Individual stocks come with a high risk and high reward. Basically, you’re buying a portion of a single company, also known as a share of the company. Numerous factors dictate the price of a stock including the profits or losses of the company as well as speculation of the future of the company.
Best investment for: People who are looking for higher returns and don’t mind the risk may want to invest in individual stocks. These stocks can involve doing a lot of research into a company in order to make a quality decision. It’s possible for single stocks have the potential for large returns and losses. For example, investing in Amazon (AMZN) in 2018 and selling in 2021 would have over a 100 percent return, but buying in 2021 and selling in 2022 would have a 50 percent loss.
Risk level: High
How to invest: Stock brokerage
Potential returns: Low to high
7. Index Funds
Index funds are a type of stock, but rather than owning one stock, you’ll own multiple stocks. These stocks track a specific market, like the S&P 500 or the Dow Jones. When purchasing an index fund, there are often low fees and steady returns. The famous investor and founder of The Vanguard Group, John C. Bogel, popularized investing in index funds. This type of investing is popular because indexes like S&P 500 index funds track the 500 largest companies in the United States.
Best investment for: People who are new to investing as you don’t need to regularly check in and research different companies because index funds track the top companies in the U.S.
Risk level: Low
How to invest: Stock brokerage companies
Potential returns: Moderate
8. Exchange-traded Funds (ETFs)
Exchange-traded funds (ETFs) are similar to index funds because your single stock has shares of multiple companies, but ETFs are usually for specific industries or categories. For example, ARK Invest is a well-known ETF that often invests in technology companies, and there are other ETFs that have an assortment of bonds, like Vanguard’s Bond Market Index Fund (BND).
Best investment for: People with a moderate level of risk tolerance. ETFs can be thought of as a mix between index funds and individual stocks since they’re riskier than index funds, but they’re less risky than individual stocks because you’re more diversified.
Risk level: Moderate
How to invest: Stock brokerage
Potential returns: Low to high
9. Alternative Investments
Cryptocurrency trading is a hot topic, but many people don’t fully understand how it works. Cryptocurrencies are a digital form of currency that’s traded on a network known as the blockchain. The first cryptocurrency was Bitcoin, and now, there’s an endless number of cryptocurrencies. Many people have become millionaires or billionaires from investing in crypto, but it’s an extremely volatile market, and many more have also lost their life savings.
Currently, there is very little to no regulation around cryptocurrency, and much of the investing involves speculation. Notable investors like Warren Buffett and his business partner Charlie Munger have been highly critical of crypto investing, calling it, “worthless, artificial gold.”
Best investment for: People with a high risk tolerance and can tolerate losing their investment may find high returns with crypto investing.
Risk level: Very high
How to invest: Crypto exchanges
Potential returns: Very high
How to Choose the Best Investments
There’s no single right way to choose the best investments because it’s dependent on your unique situation. To make the best choice for yourself, you’ll need to assess your personal risk tolerance and when you’re hoping to cash out on your investments.
1. Assess Your Risk Tolerance
When it comes to investing, the higher the risk, the higher the reward, but it can also mean bigger losses due to unforeseen circumstances. While looking at the top nine best investments, consider how risky they are and whether or not they’re right for you. If you’re concerned about losing money and simply want steady, average returns from your investments, you may want to choose investments that are lower risk.
2. Gauge Your Time Horizon
An important aspect of investing is when you plan on needing the returns from your investment. Many people invest as a way to save for retirement, but some people invest in order to make money to pursue another goal, like purchasing a new home or going on a big trip. For those with a longer time frame of 10 or more years, you can tolerate making low-risk investments with steady returns. If you need the returns sooner, you may want to look into taking more risks.
A simple way to invest based on your time horizon is to use target date funds. The United States Securities and Exchange Commission describes target date funds as being “designed to be long-term investments for individuals with particular retirement dates in mind.” With this type of fund, you set the date you plan on retiring or selling your investments, and it will automatically adjust for risk.
3. Recognize Your Personal Investment Knowledge
Investing does come along with some risks, and these risks vary depending on which type of investing you do. For example, investing in a high-yield savings account is much less of a risk than investing in individual stocks. As a way to minimize your risk and be fully aware of the risks you’re taking, it’s helpful to educate yourself further on each investment and gauge your personal knowledge.
There’s always room to grow your investing and personal finance knowledge. Even the greatest investors in the world continue to learn as much as they can about investment strategies.
4. Assess How Much You Can Budget for Investing
When getting started on your investment journey, it’s often a good idea to minimize your debts as much as possible before creating a budget. For example, if you have a high amount of credit card debt, the interest you’re paying will counteract the money you’re putting into different investment opportunities.
Once you have minimal debt, you can create a budget to see how much you can invest each month. With many of the investments covered here, you can set up automatic investments to make the process a little easier as well.
Best Investments: FAQ
Now, you know about various investments as well as the risk associated with each one. The following are some additional frequently asked questions to help you get started with investing.
What Is Compound Interest?
Compound interest is when the money you make from interest starts making you additional money as well. For example, with a 10 percent interest rate, $1,000 would make you $100. The following year, you’d earn 10 percent interest on $1,100 because that extra $100 you earned will earn interest as well.
Without investing anything else, your original $1,000 investment will be more than double your original investment in 10 years.
Which Investment Gives the Highest Returns?
Investments that have the highest return opportunities include real estate, individual stocks, and alternative investments like cryptocurrencies. Just be sure to keep in mind that these investments also come with the most risk.
Is It OK to Invest During Times of Uncertainty?
Investing during uncertain times can bring better-than-average returns later on. Marcus by Goldman Sachs recommends taking the long view when making your investments. Even during a bad economy, historical data shows that it eventually recovers. You’ll just need to assess your risk and decide if you can weather the storm until it rebounds.
Should You Invest with Bad Credit?
Investing is a way to save for your retirement or future purchases, and it can increase your overall net worth. If you have bad credit or a lot of debt, it may be best to wait on investing because that money could go to paying off debt, improving your credit, and increasing your financial security.
If you need help improving or repairing your credit score, allow Credit.com to help. We have services like ExtraCredit, and we can also provide you with a free credit report card. We’ll be there to help you learn how to improve your credit as well as other ways to increase your wealth, so sign up today!
In Best Low-Risk Investments for 2023, I provided a comprehensive list of low-risk investments with predictable returns. But it’s precisely because those returns are low-risk that they also provide relatively low returns.
In this article, we’re going to look at high-yield investments, many of which involve a higher degree of risk but are also likely to provide higher returns.
True enough, low-risk investments are the right investment solution for anyone who’s looking to preserve capital and still earn some income.
But if you’re more interested in the income side of an investment, accepting a bit of risk can produce significantly higher returns. And at the same time, these investments will generally be less risky than growth stocks and other high-risk/high-reward investments.
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Determine How Much Risk You’re Willing to Take On
The risk we’re talking about with these high-yield investments is the potential for you to lose money. As is true when investing in any asset, you need to begin by determining how much you’re willing to risk in the pursuit of higher returns.
Chasing “high-yield returns” will make you broke if you don’t have clear financial goals you’re working towards.
I’m going to present a large number of high-yield investments, each with its own degree of risk. The purpose is to help you evaluate the risk/reward potential of these investments when selecting the ones that will be right for you.
If you’re looking for investments that are completely safe, you should favor one or more of the highly liquid, low-yield vehicles covered in Best Low-Risk Investments for 2023. In this article, we’re going to be going for something a little bit different. As such, please note that this is not in any way a blanket recommendation of any particular investment.
Best High-Yield Investments for 2023
Table of Contents
Below is my list of the 18 best high-yield investments for 2023. They’re not ranked or listed in order of importance. That’s because each is a unique investment class that you will need to carefully evaluate for suitability within your own portfolio.
Be sure that any investment you do choose will be likely to provide the return you expect at an acceptable risk level for your own personal risk tolerance.
1. Treasury Inflation-Protected Securities (TIPS)
Let’s start with this one, if only because it’s on just about every list of high-yield investments, especially in the current environment of rising inflation. It may not actually be the best high-yield investment, but it does have its virtues and shouldn’t be overlooked.
Basically, TIPS are securities issued by the U.S. Treasury that are designed to accommodate inflation. They do pay regular interest, though it’s typically lower than the rate paid on ordinary Treasury securities of similar terms. The bonds are available with a minimum investment of $100, in terms of five, 10, and 30 years. And since they’re fully backed by the U.S. government, you are assured of receiving the full principal value if you hold a security until maturity.
But the real benefit—and the primary advantage—of these securities is the inflation principal additions. Each year, the Treasury will add an amount to the bond principal that’s commensurate with changes in the Consumer Price Index (CPI).
Fortunately, while the principal will be added when the CPI rises (as it nearly always does), none will be deducted if the index goes negative.
You can purchase TIPS through the U.S. Treasury’s investment portal, Treasury Direct. You can also hold the securities as well as redeem them on the same platform. There are no commissions or fees when buying securities.
On the downside, TIPS are purely a play on inflation since the base rates are fairly low. And while the principal additions will keep you even with inflation, you should know that they are taxable in the year received.
Still, TIPS are an excellent low-risk, high-yield investment during times of rising inflation—like now.
2. I Bonds
If you’re looking for a true low-risk, high-yield investment, look no further than Series I bonds. With the current surge in inflation, these bonds have become incredibly popular, though they are limited.
I bonds are currently paying 6.89%. They can be purchased electronically in denominations as little as $25. However, you are limited to purchasing no more than $10,000 in I bonds per calendar year. Since they are issued by the U.S. Treasury, they’re fully protected by the U.S. government. You can purchase them through the Treasury Department’s investment portal, TreasuryDirect.gov.
“The cash in my savings account is on fire,” groans Scott Lieberman, Founder of Touchdown Money. “Inflation has my money in flames, each month incinerating more and more. To defend against this, I purchased an I bond. When I decide to get my money back, the I bond will have been protected against inflation by being worth more than what I bought it for. I highly recommend getting yourself a super safe Series I bond with money you can stash away for at least one year.”
You may not be able to put your entire bond portfolio into Series I bonds. But just a small investment, at nearly 10%, can increase the overall return on your bond allocation.
3. Corporate Bonds
The average rate of return on a bank savings account is 0.33%. The average rate on a money market account is 0.09%, and 0.25% on a 12-month CD.
Now, there are some banks paying higher rates, but generally only in the 1%-plus range.
If you want higher returns on your fixed income portfolio, and you’re willing to accept a moderate level of risk, you can invest in corporate bonds. Not only do they pay higher rates than banks, but you can lock in those higher rates for many years.
For example, the average current yield on a AAA-rated corporate bond is 4.55%. Now that’s the rate for AAA bonds, which are the highest-rated securities. You can get even higher rates on bonds with lower ratings, which we will cover in the next section.
Corporate bonds sell in face amounts of $1,000, though the price may be higher or lower depending on where interest rates are. If you choose to buy individual corporate bonds, expect to buy them in lots of ten. That means you’ll likely need to invest $10,000 in a single issue. Brokers will typically charge a small per-bond fee on purchase and sale.
An alternative may be to take advantage of corporate bond funds. That will give you an opportunity to invest in a portfolio of bonds for as little as the price of one share of an ETF. And because they are ETFs, they can usually be bought and sold commission free.
You can typically purchase corporate bonds and bond funds through popular stock brokers, like Zacks Trade, TD Ameritrade.
Corporate Bond Risk
Be aware that the value of corporate bonds, particularly those with maturities greater than 10 years, can fall if interest rates rise. Conversely, the value of the bonds can rise if interest rates fall.
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4. High-Yield Bonds
In the previous section we talked about how interest rates on corporate bonds vary based on each bond issue’s rating. A AAA bond, being the safest, has the lowest yield. But a riskier bond, such as one rated BBB, will provide a higher rate of return.
If you’re looking to earn higher interest than you can with investment-grade corporate bonds, you can get those returns with so-called high-yield bonds. Because they have a lower rating, they pay higher interest, sometimes much higher.
The average yield on high-yield bonds is 8.29%. But that’s just an average. The yield on a bond rated B will be higher than one rated BB.
You should also be aware that, in addition to potential market value declines due to rising interest rates, high-yield bonds are more likely to default than investment-grade bonds. That’s why they pay higher interest rates. (They used to call these bonds “junk bonds,” but that kind of description is a marketing disaster.) Because of those twin risks, junk bonds should occupy only a small corner of your fixed-income portfolio.
High Yield Bond Risk
In a rapidly rising interest rate environment, high-yield bonds are more likely to default.
High-yield bonds can be purchased under similar terms and in the same places where you can trade corporate bonds. There are also ETFs that specialize in high-yield bonds and will be a better choice for most investors, since they will include diversification across many different bond issues.
5. Municipal Bonds
Just as corporations and the U.S. Treasury issue bonds, so do state and local governments. These are referred to as municipal bonds. They work much like other bond types, particularly corporates. They can be purchased in similar denominations through online brokers.
The main advantage enjoyed by municipal bonds is their tax-exempt status for federal income tax purposes. And if you purchase a municipal bond issued by your home state, or a municipality within that state, the interest will also be tax-exempt for state income tax purposes.
That makes municipal bonds an excellent source of tax-exempt income in a nonretirement account. (Because retirement accounts are tax-sheltered, it makes little sense to include municipal bonds in those accounts.)
Municipal bond rates are currently hovering just above 3% for AAA-rated bonds. And while that’s an impressive return by itself, it masks an even higher yield.
Because of their tax-exempt status, the effective yield on municipal bonds will be higher than the note rate. For example, if your combined federal and state marginal income tax rates are 25%, the effective yield on a municipal bond paying 3% will be 4%. That gives an effective rate comparable with AAA-rated corporate bonds.
Municipal bonds, like other bonds, are subject to market value fluctuations due to interest rate changes. And while it’s rare, there have been occasional defaults on these bonds.
Like corporate bonds, municipal bonds carry ratings that affect the interest rates they pay. You can investigate bond ratings through sources like Standard & Poor’s, Moody’s, and Fitch.
Fund
Symbol
Type
Current Yield
5 Average Annual Return
Vanguard Inflation-Protected Securities Fund
VIPSX
TIPS
0.06%
3.02%
SPDR® Portfolio Interm Term Corp Bond ETF
SPIB
Corporate
4.38%
1.44%
iShares Interest Rate Hedged High Yield Bond ETF
HYGH
High-Yield
5.19%
2.02%
Invesco VRDO Tax-Free ETF (PVI)
PVI
Municipal
0.53%
0.56%
6. Longer Term Certificates of Deposit (CDs)
This is another investment that falls under the low risk/relatively high return classification. As interest rates have risen in recent months, rates have crept up on certificates of deposit. Unlike just one year ago, CDs now merit consideration.
But the key is to invest in certificates with longer terms.
“Another lower-risk option is to consider a Certificate of Deposit (CD),” advises Lance C. Steiner, CFP at Buckingham Advisors. “Banks, credit unions, and many other financial institutions offer CDs with maturities ranging from 6 months to 60 months. Currently, a 6-month CD may pay between 0.75% and 1.25% where a 24-month CD may pay between 2.20% and 3.00%. We suggest considering a short-term ladder since interest rates are expected to continue rising.” (Stated interest rates for the high-yield savings and CDs were obtained at bankrate.com.)
Most banks offer certificates of deposit with terms as long as five years. Those typically have the highest yields.
But the longer term does involve at least a moderate level of risk. If you invest in a CD for five years that’s currently paying 3%, the risk is that interest rates will continue rising. If they do, you’ll miss out on the higher returns available on newer certificates. But the risk is still low overall since the bank guarantees to repay 100% of your principle upon certificate maturity.
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7. Peer-to-Peer (P2P) Lending
Do you know how banks borrow from you—at 1% interest—then loan the same money to your neighbor at rates sometimes as high as 20%? It’s quite a racket, and a profitable one at that.
But do you also know that you have the same opportunity as a bank? It’s an investing process known as peer-to-peer lending, or P2P for short.
P2P lending essentially eliminates the bank. As an investor, you’ll provide the funds for borrowers on a P2P platform. Most of these loans will be in the form of personal loans for a variety of purposes. But some can also be business loans, medical loans, and for other more specific purposes.
As an investor/lender, you get to keep more of the interest rate return on those loans. You can invest easily through online P2P platforms.
One popular example is Prosper. They offer primarily personal loans in amounts ranging between $2,000 and $40,000. You can invest in small slivers of these loans, referred to as “notes.” Notes can be purchased for as little as $25.
That small denomination will make it possible to diversify your investment across many different loans. You can even choose the loans you will invest in based on borrower credit scores, income, loan terms, and purposes.
Prosper, which has managed $20 billion in P2P loans since 2005, claims a historical average return of 5.7%. That’s a high rate of return on what is essentially a fixed-income investment. But that’s because there exists the possibility of loss due to borrower default.
However, you can minimize the likelihood of default by carefully choosing borrower loan quality. That means focusing on borrowers with higher credit scores, incomes, and more conservative loan purposes (like debt consolidation).
8. Real Estate Investment Trusts (REITs)
REITs are an excellent way to participate in real estate investment, and the return it provides, without large amounts of capital or the need to manage properties. They’re publicly traded, closed-end investment funds that can be bought and sold on major stock exchanges. They invest primarily in commercial real estate, like office buildings, retail space, and large apartment complexes.
If you’re planning to invest in a REIT, you should be aware that there are three different types.
“Equity REITs purchase commercial, industrial, or residential real estate properties,” reports Robert R. Johnson, PhD, CFA, CAIA, Professor of Finance, Heider College of Business, Creighton University and co-author of several books, including The Tools and Techniques Of Investment Planning, Strategic Value Investing and Investment Banking for Dummies. “Income is derived primarily from the rental on the properties, as well as from the sale of properties that have increased in value. Mortgage REITs invest in property mortgages. The income is primarily from the interest they earn on the mortgage loans. Hybrid REITs invest both directly in property and in mortgages on properties.”
Johnson also cautions:
“Investors should understand that equity REITs are more like stocks and mortgage REITs are more like bonds. Hybrid REITs are like a mix of stocks and bonds.”
Mortgage REITs, in particular, are an excellent way to earn steady dividend income without being closely tied to the stock market.
Examples of specific REITs are listed in the table below (source: Kiplinger):
REIT
Equity or Mortgage
Property Type
Dividend Yield
12 Month Return
Rexford Industrial Realty
REXR
Industrial warehouse space
2.02%
2.21%
Sun Communities
SUI
Manufactured housing, RVs, resorts, marinas
2.19%
-14.71%
American Tower
AMT
Multi-tenant cell towers
2.13%
-9.00%
Prologis
PLD
Industrial real estate
2.49%
-0.77%
Camden Property Trust
CPT
Apartment complexes
2.77%
-7.74%
Alexandria Real Estate Equities
ARE
Research Properties
3.14%
-23.72%
Digital Realty Trust
DLR
Data centers
3.83%
-17.72%
9. Real Estate Crowdfunding
If you prefer direct investment in a property of your choice, rather than a portfolio, you can invest in real estate crowdfunding. You invest your money, but management of the property will be handled by professionals. With real estate crowdfunding, you can pick out individual properties, or invest in nonpublic REITs that invest in very specific portfolios.
One of the best examples of real estate crowdfunding is Fundrise. That’s because you can invest with as little as $500 or create a customized portfolio with no more than $1,000. Not only does Fundrise charge low fees, but they also have multiple investment options. You can start small in managed investments, and eventually trade up to investing in individual deals.
One thing to be aware of with real estate crowdfunding is that many require accredited investor status. That means being high income, high net worth, or both. If you are an accredited investor, you’ll have many more choices in the real estate crowdfunding space.
If you are not an accredited investor, that doesn’t mean you’ll be prevented from investing in this asset class. Part of the reason why Fundrise is so popular is that they don’t require accredited investor status. There are other real estate crowdfunding platforms that do the same.
Just be careful if you want to invest in real estate through real estate crowdfunding platforms. You will be expected to tie your money up for several years, and early redemption is often not possible. And like most investments, there is the possibility of losing some or all your investment principal.
Low minimum investment – $10
Diversified real estate portfolio
Portfolio Transparency
10. Physical Real Estate
We’ve talked about investing in real estate through REITs and real estate crowdfunding. But you can also invest directly in physical property, including residential property or even commercial.
Owning real estate outright means you have complete control over the investment. And since real estate is a large-dollar investment, the potential returns are also large.
For starters, average annual returns on real estate are impressive. They’re even comparable to stocks. Residential real estate has generated average returns of 10.6%, while commercial property has returned an average of 9.5%.
Next, real estate has the potential to generate income from two directions, from rental income and capital gains. But because of high property values in many markets around the country, it will be difficult to purchase real estate that will produce a positive cash flow, at least in the first few years.
Generally speaking, capital gains are where the richest returns come from. Property purchased today could double or even triple in 20 years, creating a huge windfall. And this will be a long-term capital gain, to get the benefit of a lower tax bite.
Finally, there’s the leverage factor. You can typically purchase an investment property with a 20% down payment. That means you can purchase a $500,000 property with $100,000 out-of-pocket.
By calculating your capital gains on your upfront investment, the returns are truly staggering. If the $500,000 property doubles to $1 million in 20 years, the $500,000 profit generated will produce a 500% gain on your $100,000 investment.
On the negative side, real estate is certainly a very long-term investment. It also comes with high transaction fees, often as high as 10% of the sale price. And not only will it require a large down payment up front, but also substantial investment of time managing the property.
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11. High Dividend Stocks
“The best high-yield investment is dividend stocks,” declares Harry Turner, Founder at The Sovereign Investor. “While there is no guaranteed return with stocks, over the long term stocks have outperformed other investments such as bonds and real estate. Among stocks, dividend-paying stocks have outperformed non-dividend paying stocks by more than 2 percentage points per year on average over the last century. In addition, dividend stocks tend to be less volatile than non-dividend paying stocks, meaning they are less likely to lose value in downturns.”
You can certainly invest in individual stocks that pay high dividends. But a less risky way to do it, and one that will avoid individual stock selection, is to invest through a fund.
One of the most popular is the ProShares S&P 500 Dividend Aristocrat ETF (NOBL). It has provided a return of 1.67% in the 12 months ending May 31, and an average of 12.33% per year since the fund began in October 2013. The fund currently has a 1.92% dividend yield.
The so-called Dividend Aristocrats are popular because they represent 60+ S&P 500 companies, with a history of increasing their dividends for at least the past 25 years.
“Dividend Stocks are an excellent way to earn some quality yield on your investments while simultaneously keeping inflation at bay,” advises Lyle Solomon, Principal Attorney at Oak View Law Group, one of the largest law firms in America. “Dividends are usually paid out by well-established and successful companies that no longer need to reinvest all of the profits back into the business.”
It gets better. “These companies and their stocks are safer to invest in owing to their stature, large customer base, and hold over the markets,” adds Solomon. “The best part about dividend stocks is that many of these companies increase dividends year on year.”
The table below shows some popular dividend-paying stocks. Each is a so-called “Dividend Aristocrat”, which means it’s part of the S&P 500 and has increased its dividend in each of at least the past 25 years.
Company
Symbol
Dividend
Dividend Yield
AbbVie
ABBV
$5.64
3.80%
Armcor PLC
AMCR
$0.48
3.81%
Chevron
CVX
$5.68
3.94%
ExxonMobil
XOM
$3.52
4.04%
IBM
IBM
$6.60
5.15%
Realty Income Corp
O
$2.97
4.16%
Walgreen Boots Alliance
WBA
$1.92
4.97%
12. Preferred Stocks
Preferred stocks are a very specific type of dividend stock. Just like common stock, preferred stock represents an interest in a publicly traded company. They’re often thought of as something of a hybrid between stocks and bonds because they contain elements of both.
Though common stocks can pay dividends, they don’t always. Preferred stocks on the other hand, always pay dividends. Those dividends can be either a fixed amount or based on a variable dividend formula. For example, a company can base the dividend payout on a recognized index, like the LIBOR (London Inter-Bank Offered Rate). The percentage of dividend payout will then change as the index rate does.
Preferred stocks have two major advantages over common stock. First, as “preferred” securities, they have a priority on dividend payments. A company is required to pay their preferred shareholders dividends ahead of common stockholders. Second, preferred stocks have higher dividend yields than common stocks in the same company.
You can purchase preferred stock through online brokers, some of which are listed under “Growth Stocks” below.
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Preferred Stock Caveats
The disadvantage of preferred stocks is that they don’t entitle the holder to vote in corporate elections. But some preferred stocks offer a conversion option. You can exchange your preferred shares for a specific number of common stock shares in the company. Since the conversion will likely be exercised when the price of the common shares takes a big jump, there’s the potential for large capital gains—in addition to the higher dividend.
Be aware that preferred stocks can also be callable. That means the company can authorize the repurchase of the stock at its discretion. Most will likely do that at a time when interest rates are falling, and they no longer want to pay a higher dividend on the preferred stock.
Preferred stock may also have a maturity date, which is typically 30–40 years after its original issuance. The company will typically redeem the shares at the original issue price, eliminating the possibility of capital gains.
Not all companies issue preferred stock. If you choose this investment, be sure it’s with a company that’s well-established and has strong financials. You should also pay close attention to the details of the issuance, including and especially any callability provisions, dividend formulas, and maturity dates.
13. Growth Stocks
This sector is likely the highest risk investment on this list. But it also may be the one with the highest yield, at least over the long term. That’s why we’re including it on this list.
Based on the S&P 500 index, stocks have returned an average of 10% per year for the past 50 years. But it is important to realize that’s only an average. The market may rise 40% one year, then fall 20% the next. To be successful with this investment, you must be committed for the long haul, up to and including several decades.
And because of the potential wide swings, growth stocks are not recommended for funds that will be needed within the next few years. In general, growth stocks work best for retirement plans. That’s where they’ll have the necessary decades to build and compound.
Since most of the return on growth stocks is from capital gains, you’ll get the benefit of lower long-term capital gains tax rates, at least with securities held in a taxable account. (The better news is capital gains on investments held in retirement accounts are tax-deferred until retirement.)
You can choose to invest in individual stocks, but that’s a fairly high-maintenance undertaking. A better way may be to simply invest in ETFs tied to popular indexes. For example, ETFs based on the S&P 500 are very popular among investors.
You can purchase growth stocks and growth stock ETFs commission free with brokers like M1 Finance, Zacks Trade, Wealthsimple.
14. Annuities
Annuities are something like creating your own private pension. It’s an investment contract you take with an insurance company, in which you invest a certain amount of money in exchange for a specific income stream. They can be an excellent source of high yields because the return is locked in by the contract.
Annuities come in many different varieties. Two major classifications are immediate and deferred annuities. As the name implies, immediate annuities begin paying an income stream shortly after the contract begins.
Deferred annuities work something like retirement plans. You may deposit a fixed amount of money with the insurance company upfront or make regular installments. In either case, income payments will begin at a specified point in the future.
With deferred annuities, the income earned within the plan is tax-deferred and paid upon withdrawal. But unlike retirement accounts, annuity contributions are not tax-deductible. Investment returns can either be fixed-rate or variable-rate, depending on the specific annuity setup.
While annuities are an excellent idea and concept, the wide variety of plans as well as the many insurance companies and agents offering them, make them a potential minefield. For example, many annuities are riddled with high fees and are subject to limited withdrawal options.
Because they contain so many moving parts, any annuity contracts you plan to enter into should be carefully reviewed. Pay close attention to all the details, including the small ones. It is, after all, a contract, and therefore legally binding. For that reason, you may want to have a potential annuity reviewed by an attorney before finalizing the deal.
15. Alternative Investments
Alternative investments cover a lot of territory. Examples include precious metals, commodities, private equity, art and collectibles, and digital assets. These fall more in the category of high risk/potential high reward, and you should proceed very carefully and with only the smallest slice of your portfolio.
To simplify the process of selecting alternative assets, you can invest through platforms such as Yieldstreet. With a single cash investment, you can invest in multiple alternatives.
“Investors can purchase real estate directly on Yieldstreet, through fractionalized investments in single deals,” offers Milind Mehere, Founder & Chief Executive Officer at Yieldstreet. “Investors can access private equity and private credit at high minimums by investing in a private market fund (think Blackstone or KKR, for instance). On Yieldstreet, they can have access to third-party funds at a fraction of the previously required minimums. Yieldstreet also offers venture capital (fractionalized) exposure directly. Buying a piece of blue-chip art can be expensive, and prohibitive for most investors, which is why Yieldstreet offers fractionalized assets to diversified art portfolios.”
Yieldstreet also provides access to digital asset investments, with the benefit of allocating to established professional funds, such as Pantera or Osprey Fund. The platform does not currently offer commodities but plans to do so in the future.
Access to wide array of alternative asset classes
Access to ultra-wealthy investments
Can invest for income or growth
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Alternative investments largely require thinking out-of-the-box. Some of the best investment opportunities are also the most unusual.
“The price of meat continues to rise, while agriculture remains a recession-proof investment as consumer demand for food is largely inelastic,” reports Chris Rawley, CEO of Harvest Returns, a platform for investing in private agriculture companies. “Consequently, investors are seeing solid returns from high-yield, grass-fed cattle notes.”
16. Interest Bearing Crypto Accounts
Though the primary appeal of investing in cryptocurrency has been the meteoric rises in price, now that the trend seems to be in reverse, the better play may be in interest-bearing crypto accounts. A select group of crypto exchanges pays high interest on your crypto balance.
One example is Gemini. Not only do they provide an opportunity to buy, sell, and store more than 100 cryptocurrencies—plus non-fungible tokens (NFTs)—but they are currently paying 8.05% APY on your crypto balance through Gemini Earn.
In another variation of being able to earn money on crypto, Crypto.com pays rewards of up to 14.5% on crypto held on the platform. That’s the maximum rate, as rewards vary by crypto. For example, rewards on Bitcoin and Ethereum are paid at 6%, while stablecoins can earn 8.5%.
It’s important to be aware that when investing in cryptocurrency, you will not enjoy the benefit of FDIC insurance. That means you can lose money on your investment. But that’s why crypto exchanges pay such high rates of return, whether it’s in the form of interest or rewards.
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17. Crypto Staking
Another way to play cryptocurrency is a process known as crypto staking. This is where the crypto exchange pays you a certain percentage as compensation or rewards for monitoring a specific cryptocurrency. This is not like crypto mining, which brings crypto into existence. Instead, you’ll participate in writing that particular blockchain and monitoring its security.
“Crypto staking is a concept wherein you can buy and lock a cryptocurrency in a protocol, and you will earn rewards for the amount and time you have locked the cryptocurrency,” reports Oak View Law Group’s Lyle Solomon.
“The big downside to staking crypto is the value of cryptocurrencies, in general, is extremely volatile, and the value of your staked crypto may reduce drastically,” Solomon continues, “However, you can stake stable currencies like USDC, which have their value pegged to the U.S. dollar, and would imply you earn staked rewards without a massive decrease in the value of your investment.”
Much like earning interest and rewards on crypto, staking takes place on crypto exchanges. Two exchanges that feature staking include Coinbase and Kraken. These are two of the largest crypto exchanges in the industry, and they provide a wide range of crypto opportunities, in addition to staking.
Invest in Startup Businesses and Companies
Have you ever heard the term “angel investor”? That’s a private investor, usually, a high net worth individual, who provides capital to small businesses, often startups. That capital is in the form of equity. The angel investor invests money in a small business, becomes a part owner of the company, and is entitled to a share of the company’s earnings.
In most cases, the angel investor acts as a silent partner. That means he or she receives dividend distributions on the equity invested but doesn’t actually get involved in the management of the company.
It’s a potentially lucrative investment opportunity because small businesses have a way of becoming big businesses. As they grow, both your equity and your income from the business also grow. And if the business ever goes public, you could be looking at a life-changing windfall!
Easy Ways to Invest in Startup Businesses
Mainvest is a simple, easy way to invest in small businesses. It’s an online investment platform where you can get access to returns as high as 25%, with an investment of just $100. Mainvest offers vetted businesses (the acceptance rate is just 5% of business that apply) for you to invest in.
It collects revenue, which will be paid to you quarterly. And because the minimum required investment is so small, you can invest in several small businesses at the same time. One of the big advantages with Mainvest is that you are not required to be an accredited investor.
Still another opportunity is through Fundrise Innovation Fund. I’ve already covered how Fundrise is an excellent real estate crowdfunding platform. But through their recently launched Innovaton Fund, you’ll have opportunity to invest in high-growth private technology companies. As a fund, you’ll invest in a portfolio of late-stage tech companies, as well as some public equities.
The purpose of the fund is to provide high growth, and the fund is currently offering shares with a net asset value of $10. These are long-term investments, so you should expect to remain invested for at least five years. But you may receive dividends in the meantime.
Like Mainvest, the Fundrise Innovation Fund does not require you to be an accredited investor.
Low minimum investment – $10
Diversified real estate portfolio
Portfolio Transparency
Final Thoughts on High Yield Investing
Notice that I’ve included a mix of investments based on a combination of risk and return. The greater the risk associated with the investment, the higher the stated or expected return will be.
It’s important when choosing any of these investments that you thoroughly assess the risk involved with each, and not focus primarily on return. These are not 100% safe investments, like short-term CDs, short-term Treasury securities, savings accounts, or bank money market accounts.
Because there is risk associated with each, most are not suitable as short-term investments. They make most sense for long-term investment accounts, particularly retirement accounts.
For example, growth stocks—and most stocks, for that matter—should generally be in a retirement account. While there will be years when you will suffer losses in your position, you’ll have enough years to offset those losses between now and retirement.
Also, if you don’t understand any of the above investments, it will be best to avoid making them. And for more complicated investments, like annuities, you should consult with a professional to evaluate the suitability and all the provisions it contains.
FAQ’s on High Yield Investment Options
What investment has the highest yield?
The investment with the highest yield will vary depending on a number of factors, including current market conditions and the amount of risk an investor is willing to take on. Generally speaking, investments with the potential for high yields also come with a higher level of risk, so it’s important for investors to carefully consider their options and choose investments that align with their financial goals and risk tolerance.
Some examples of high-yield investments include:
1. Stocks: Some stocks may offer high dividend yields, which is the annual dividend payment a company makes to its shareholders, expressed as a percentage of the stock’s current market price.
2. Real estate: Investing in real estate, either directly by purchasing property or indirectly through a real estate investment trust (REIT), can potentially generate high returns in the form of rental income and appreciation of the property value.
3. High-yield bonds: High-yield bonds, also known as junk bonds, are bonds that are issued by companies with lower credit ratings and thus offer higher yields to compensate for the added risk.
4. Private lending: Investing in private loans, such as through peer-to-peer lending platforms, can potentially offer high yields, but it also carries a higher level of risk.
5. Commodities: Investing in commodities, such as precious metals or oil, can potentially generate high returns if the prices of those commodities rise. However, the prices of commodities can also be volatile and subject to market fluctuations.
It’s important to note that these are just examples and not recommendations. As with any investment, it’s crucial to carefully research and consider all the potential risks and rewards before making a decision.
Where can I invest my money to get high returns?
There are a number of places you can invest your money to get high returns. One option is to invest in stocks, which typically offer higher returns than other investment options. Another option is to invest in bonds, which are considered a relatively safe investment option.
You could also invest in real estate, which has the potential to provide high returns if done correctly. Finally, you could also invest in commodities, such as gold or silver, which can be a risky investment but can also offer high returns.
What investments can I make a 10% return?
It’s difficult to predict exactly what investments will generate a 10% return, as investment returns can vary depending on a number of factors, including market conditions and the performance of the specific investment. Some investments, such as stocks and real estate, have the potential to generate returns in excess of 10%, but they also come with a higher level of risk. It’s important to remember that past performance is not necessarily indicative of future results, and that all investments carry some degree of risk
How to Make $500 a Month in Passive Income – SmartAsset
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You can produce $500 a month in passive income through savings accounts, certificates of deposit, stocks, bonds, funds and other investment vehicles. Each offers varying rates of return, degrees of safety, convenience, and liquidity. And each requires a significant initial investment to produce the required amount of passive income.
A financial advisor will be able to help with your investment decisions.
How to Make $500 a Month in Passive Income
Passive income generally refers to money you receive automatically without having to do anything such as work for wages. The most common way to generate passive income is through purchasing investments that pay you interest or dividends.
Producing passive income in this way calls for putting in money rather than putting in the effort. However, once you have invested the money, you can cash checks or receive deposits to your bank account without any intervention on your part.
And there are many investments you can make to produce $500 monthly in passive income. Here are some of the most accessible and reliable:
Savings Account
A bank or credit union savings account is as passive, safe and convenient as you can get. The top-paying savings accounts yield around 4.5% annually. At that rate, depositing approximately $133,333 will give you $500 monthly.
Certificates of Deposit
Certificates of deposit (CDs) are relatively safe, somewhat better-paying and a little less convenient than savings accounts. The best one-year bank certificates of deposit yield about 5% annually. So if you buy a $120,000 12-month CD, you’ll get about $500 in passive income each and every month.
Bonds
Corporate bonds are riskier than bank deposits. But AAA-rated bonds are generally considered safe and historically yield a little over 4%. If you buy $125,000 worth of AA-rated bonds, you can expect to receive the equivalent of $500 a month. That usually comes in quarterly, semi-annual or annual payments.
Dividend-paying Stocks
Shares of public companies that split profits with shareholders by paying cash dividends yield between 2% and 6% a year. With that in mind, putting $250,000 into low-yielding dividend stocks or $83,333 into high-yielding shares will get your $500 a month. Although, most dividends are paid quarterly, semi-annually or annually.
Diversified Securities Portfolio
A diversified securities portfolio of 60% stocks and 40% bonds has returned about 6.1% annually on average for the last decade, according to Vanguard. If future performance matches past performance, which is not guaranteed, $100,000 invested in a well-chosen 60/40 portfolio could grow by about $6,000 a year. The return includes dividends as well as price appreciation, so you may have to sell some of your investments to get $500 a month.
Exchange-Traded Funds
Low in cost and easy to buy, passively managed exchange-traded funds (ETFs) produce returns that vary according to whether they track stock, bond or other indexes. To cite one example, Vanguard’s High Dividend Yield ETF yields approximately 3%. You’d need to invest approximately $167,000 to get $500 a month in passive income from that ETF.
Real Estate
Purchasing shares of a Real Estate Investment Trust (REIT) is one popular way to get passive income from real estate. Publicly traded REITS pay dividends at an average rate of about 3%. So you’d need $167,000 to produce $500 in monthly passive income this way.
Other income opportunities that are somewhat less passive can also provide regular monthly income with varying amounts of effort. Drop shipping, for example, is a business model that involves setting up an online store and taking orders for products that pass directly to a supplier, who fulfills them without you having to do a thing except accept payment.
Direct investments in real estate, such as purchasing rental properties, can produce income that the internal revenue service (IRS) views as passive income, entitling it to more favorable tax treatment than earned income from working. However, managing residential real estate can involve considerable effort and attention on your part unless you pay a management company to take care of leasing, repairs and other tasks.
Bottom Line
To generate $500 a month in passive income you may need to invest between $83,333 and $250,000, depending on the asset and investment type you select. In addition to yield, you’ll want to consider safety, liquidity and convenience when selecting the investments you’ll employ to provide monthly passive income. However, once you’ve made the decision and put down your money, you can expect to receive regular payments without much, if any, additional future effort.
Tips for Investing
Financial advisors help investors analyze various investment options and can help create a plan of action to meet their goals. Before investing in any passive income investments, consider talking with an advisor to understand how it fits within your portfolio. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
When investing your money, it is important to diversify your assets among many different types of stocks and bonds. This helps you gain exposure to multiple sectors of the market and benefit from their growth. Our asset allocation calculator helps you select a profile that’s right for you based on your answers to simple questions.
Mark Henricks
Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
Which Savings Account Will Earn You the Most Money? – SmartAsset
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There are many types of savings accounts. Money market accounts can earn higher interest rates than traditional savings accounts. But CDs can often earn even higher rates. However, there are pros and cons to each type of account that goes beyond interest rates. Here’s what to know before you deposit your money.
If you have questions about how your savings account fits into your overall financial plan, consider working with a financial advisor.
High-Yield Savings Accounts
High-yield savings accounts are similar in many ways to traditional savings accounts and have many of the same advantages, including FDIC insurance on balances up to $250,000.
As their name suggests, high-yield savings accounts pay interest rates higher than traditional savings accounts. Interest rates change frequently, but generally, that equates to 10-20 times higher interest rates.
Other than interest rates, the biggest difference between high-yield savings accounts and traditional savings accounts is the presence of bank branches. Those that offer traditional savings accounts typically have them, while those with high-yield savings accounts don’t.
The latter is generally offered by online-only banks, and their lack of branches allows them to cut costs and offer better rates to their customers. However, the two are otherwise similar in most ways.
High-yield savings accounts, which at time of writing offered annual percentage yields above 4%, usually have a monthly transaction limit (typically six per month), and they often don’t have ATM access or check-writing privileges. Still, customers can access their money whenever they need it by transferring money electronically.
Money Market Accounts
Money market accounts are another type of saving product that offers higher interest rates than checking accounts and traditional savings accounts. The FDIC also insures balances up to $250,000.
In addition, these accounts sometimes have features like mobile check deposits and ATM withdrawals. Like high-yield savings accounts, there may be limits on the number of monthly transactions.
The best money market accounts generally have interest rates 10-20 times higher than traditional savings accounts. While some require a minimum deposit, several allow you to open an account with $0 to start.
However, some money market accounts may charge fees for maintaining a low balance or making too many withdrawals. Check the fine print and make sure you understand the terms before opening an account.
Certificates of Deposit (CDs)
Certificates of deposit (CDs) are another type of savings product that offers higher interest rates than traditional savings accounts. CDs, which are FDIC-insured, lock up your money for a certain period in exchange for a higher interest rate.
You will usually incur penalties if you want to withdraw your money before the end of the CD’s term. This makes CDs better for medium-term savings goals and for money you won’t need in the immediate future.
However, the best CD rates can be higher than rates on money market accounts or high-yield savings accounts, so keeping your money locked up could be worthwhile if you want the best rate. Plus, some CDs have no minimum to get started, so you can deposit as much as you want.
But unlike savings accounts, you often can’t make additional deposits to the account. Thus, they may not be the best choice if you don’t have a lump sum to deposit. Still, the interest rates CDs offer make them a good choice for those with funds to spare.
Comparing and Contrasting Savings Accounts
There are several things to keep in mind when deciding which type of savings account is right for you. Here are something things to keep in mind:
Interest rates: If you want to earn a return on your money, interest rates are the first thing to check. High-yield savings accounts, money market accounts and CDs can all offer high-interest rates today, with CDs having some of the highest rates. However, CDs require you to lock up your money for a certain period.
Fees: Some banks or credit unions might charge you maintenance fees or a fee if your balance falls below a certain level. These fees can eat into your earnings on the account, so it’s important to keep them in mind.
Minimum balance requirements: High-yield savings accounts, money market accounts and CDs can all have a minimum balance requirement to open an account, depending on the bank. Others might require a minimum balance to earn the highest interest rate.
Liquidity: The ease of accessing your money may vary depending on the type of account and the bank. For instance, money market accounts and some high-yield savings accounts may allow you to write checks or withdraw money from an ATM. In contrast, CDs usually require you to leave your money alone until the end of the term.
Each type of savings account has its own set of pros and cons. The best choice will depend on your savings goals.
Bottom Line
High-yield savings accounts, money market accounts and CDs can all have competitive interest rates that allow your money to grow. The best CDs offer some of the highest interest rates, but they require you to keep your money locked away to earn the best rate. Thus, it’s important to consider not only the interest rate but also factors like fees, minimum balance requirements and liquidity before deciding which type of savings account is best for you.
Tips for Opening a Savings Account
A financial advisor can help you work through your banking needs and put together a plan that works for your unique situation. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
The best savings accounts pay some of the highest rates and often do away with costly fees. See SmartAsset’s list of the best savings accounts to find one that’s right for you.