Ask the Piggy Bank: Low Risk Investments

One of my best sources for inspiration comes from other people’s questions. So, I’ve started an “Ask the Piggy Bank.” You can drop me an email with personal finance questions, and every so often I’ll answer them on Yielding Wealth.

Today I’ll start with a great question from an associate of mine in the blogging world:

“I have a couple of thousand dollars that I would like to put away.
Currently, I’ve been using CDs, but are there any other good, low-risk
areas I can put the money? I don’t need it for at least a year or so.

Oooh. Good question. Especially in the current investing climate of fear. The CDs aren’t a bad idea, as the returns aren’t too bad (in the 4.55 area). And if you put in more than $2,000, you could get quite good returns, on the order of 6.5 for one year for $5,000. If you put in more, for longer, you can get even higher yields. But there are other options.

Online savings account

This is my absolute favorite. We so often forget that a savings account is an investment. You can get a high yield online savings account (mine has a 5.05 APY — not too bad for a cash investment) that you can access anytime. If you are looking for safe, it doesn’t get much safer than an online savings account with an FDIC-insured bank or credit union. Watch out, though. Some have a required minimum.

Government bonds

Long-term U.S. Treasuries are getting popular right now, since economic fears are looming, but if you want your money in a year, it may not be the best bet (although you can cash it in early, after a year, penalties and what-not destroy some of the value).

However, government bonds in general, including short term Treasuries and local municipal bonds, are usually fairly safe. The yield is the 4.28 to 4.41 range. Stay away from corporate bonds for now, as well as bond funds. They may be good buys, and if you choose carefully you could make a real killing, but if you want your money in a year, it might not be the best, since who knows when these companies will be recovering. And such investments aren’t exactly safe, either right now.

Money market

I like money market accounts because you have more access to your money. However, the money market rate is lowish right now, so you’d actually get a better return with your CDs or government Treasury notes. But the money market mutual fund is an interesting choice for a long-term “safe” investment for your portfolio. Just don’t expect it to wow you on yields.

Just remember: if you are looking for “safe” (and all investment has some chance of loss — even in cash assets), you are not going to get fabulous yields. The best you can hope for is something in the 4.3 to 5.5 range with “safe” investments of $2,000.