If you are looking for a safe investment with relatively high returns, you will probably be considering a Certificate of Deposit or CD. A CD is a type of investment that banks and credit unions offer which provide a high fixed rate if you commit to leaving your deposit untouched for a long period of time.
These periods can be as long as ten years or more and the longer the period, the higher the returns. However, if you want to withdraw your funds before that time is up, you will have to pay a high penalty.
CDs are a popular choice for people who intend to hold onto their capital as savings. Even investors who wish to make the most of their money sometimes choose CD. Investors who would otherwise trade stocks or Forex may recognize the likelihood that they will earn more simply by going the route of a CD or CD ladder.
A CD ladder is a more savvy way of going about saving your money with CDs. It is a way of staggering your deposits so as to get the best interest rates on investments of different lengths.
However, while CDs are a relatively safe and lucrative investment, there are other secure investments that can get you better returns. Before settling on CDs, consider the following investments.
Pay off your debt
To begin with, there is a lesson that most people, even the savviest investors, need to learn. Few investments are lucrative enough to cancel out the interest on credit card debt. Credit cards are popular because they provide a way of dipping into extra funds when you need them. However, if you don’t pay them off immediately, the high interest rates will end up costing you thousands of dollars.
Let’s say you have a credit card with a 15% (or even 10%) interest rate. The amount of money you lose every month on a balance of $1,000 is far more than what you would earn in any traditional “safe” investment. A CD will get you nowhere near that rate. By simply paying off your debt with your capital, you get returns far better than you would with CDs.
There is a caveat to this. Many people choose to invest their capital rather than paying off their debt because they recognize the importance of savings. In an ideal world, we would pay off our debt and then save the money we would otherwise have paid as interest. But that requires a certain type of resolve, and you may end up spending that money instead. After ten years, you find you have squandered those funds, and do not have the CDs to draw from.
Bond Funds
Another alternative to CDs is bond funds. You can invest in funds that hold bonds in government, companies, utilities, and even foreign nations. These generally have a maturation period of 1 to 3 years, and can get you returns of over 3%, which is higher than many CDs.
Of course, this is nowhere near the interest you are paying on credit card or other high-risk debt. But it is a way of ensuring you have funds available for that future date, whether it is retirement or an unexpected time of need.
Dividend-Paying Stocks
There are companies which pay out dividends to shareholders on a regular basis. These companies, such as Procter & Gamble, pay dividends as incentive to hold onto their stocks. They even raise their dividends on a regular basis, and these dividends often outperform the rates you get on CDs.
There is, however, far more risk involved in buying dividend-paying stocks than CDs. While CDs will preserve your investment no matter what, while paying interest, stocks may lose value. You can end up losing money on stocks even if you are being paid dividends. And even if you don’t actually lose money, you may end up earning far less than you would have on CDs.
If you have an appetite for risk, dividend-paying stocks are an interesting option. However, if you simply want an investment that moves forward like clockwork, CDs are much safer.
Peer-To-Peer Lending
A fairly new, interesting way to make money on your capital is by lending it to peers. The idea of lending money as an individual is not new, but the platforms available for peer-to-peer (P2P) lending are.
P2P lending platforms match lenders with borrowers. You accept borrowers who are trustworthy and earn interest on your money from them. They pay less than they would to a private lender, and you earn more than you would on most investments.
There is risk involved in P2P lending. However, if you stick to borrowers with AAA ratings, you can keep your risk to a minimum. It is still riskier than investing in CDs, but probably not as risky as investing in stocks.
CDs and CD ladders provide reliable ways of earning returns on your capital. These returns are limited, however, and there are other safe ways to make money. Consider the above investments, and think about whether it is worth simply paying off your high-interest debt.
