All investments come with some degree of risk, but for some this risk is extremely low, giving you an easy opportunity to grow your money with a very small chance of taking a significant loss. While the potential earnings are also lower with low-risk investments, these can provide a comfortable way to get started in the world of investing.

  • Savings Accounts
  • Money Market Accounts
  • Certificates of Deposit (CDs)
  • Treasury Securities
  • Money Market Funds
  • Government Bond Funds
  • Municipal Bond Funds
  • Rewards Checking Accounts
  • Dividend-Paying Stocks
  • Treasury Inflation-Protected Securities (TIPS)

Identifying Safe Investments

Safe investments are those based on stable markets and institutions, such as the government. When you’re evaluating an investment, you want to consider both your potential earnings and your potential losses. With a volatile investment like a growth stock, you stand to gain a lot, but you can also lose your investment if your anticipated growth doesn’t materialize.

Carefully research any investment opportunity before you commit to it. Identify key details like the:

  • Minimum investment
  • Potential dividend payments
  • Maturity date
  • Penalties for cashing out early
  • Interest rate

Once you’ve determined that the investment has the appropriate amount of risk for your portfolio, you need to decide how much to invest. The more money you place in the investment, the greater your personal risk, even if you’re using a low-risk option.

Financial advisors typically suggest that you invest 10 to 15% of your annual income. If that seems like too much, you can begin lower. It’s possible to make big strides investing with just $1,000. If possible, keep three to six months of living expenses in safe investments so you’re growing this money while keeping it relatively accessible in case of an emergency.

Savings Accounts

A savings account is a simple, liquid way to invest your money. These bank accounts are guaranteed by the FDIC or NCUA, so there’s almost no risk. The average interest rate for a US savings account is just 0.06%, so this isn’t the most lucrative investment that you could choose, but it is likely the easiest option, particularly if you don’t consider yourself an investor.

If you’re planning to use a savings account as an investment strategy, do thorough research to find the best option on the market. Look for the highest interest rate you can find and read all the fine print so you know how much you need to keep into the account to avoid fees.

Money Market Accounts

Money market accounts are similar to savings accounts in that they’re insured by the FDIC or NCUA, in this case for up to $250,000. A money market account offers a higher interest rate than most savings accounts, though you’re required to keep a higher balance in them. You can make withdrawals from this account, but you’re limited to six transactions a month. When you’re investing your money for the purpose of earning interest, this is usually sufficient, as you won’t want to move the money very often.

Certificates of Deposit (CDs)

A certificate of deposit (CD) is a fixed-term loan that you supply to your bank. The bank gets access to your funds for a set period of time and you receive a guaranteed interest payment when the loan matures. CDs are safe investments because they’re insured by the FDIC or NCUA. Interest rates for CDs are typically higher than those for savings accounts or money market accounts. However, you must sacrifice easy access to your money.

Most banks charge a penalty fee if you need to withdraw the money in your CD before its maturity date. If you’re concerned about tying up this much money, look for a no-penalty CD which will give you ready access to the funds without this charge.

Treasury Securities

A treasury security is a loan to the US Government. This is a safe investment because you’re guaranteed repayment unless the government defaults on the loan, which is unlikely. These securities are sold in $100 increments and are available with varying terms. You options are:

  • Treasury bills: Short-term investments that typically mature within one to 12 months with a relatively low interest rate and do not offer interest payments
  • Treasury notes: Mature within two to 10 years, provide interest payments every six months, and offer mid-range interest rates
  • Treasury bonds: Offer the highest interest rates of any treasury security with payments every six months and a term of 30 years

Interest rates for these securities fluctuate constantly. You can sell your security before it’s matured, but you may not profit if interest rates have risen since you purchased the security.

Money Market Funds

A money market fund is a bond mutual fund comprised of low-risk investments like CDs, treasury bills, and municipal bonds. You can purchase shares in money market funds on the open market. This security isn’t backed by the FDIC, but is still relatively safe since it’s comprised of reliable, low-risk investments. Though your risk is small with this investment, it is still there. Fluctuating interest rates can impact your total earnings, and inflation could cause you to lose your principal.

Government Bond Funds

A government bond fund is a mutual fund invested in the US Government’s debt securities. This investment is relatively safe since it’s backed by the government. You are still subject to some risks related to interest rates and inflation. The value of your government bond funds will fluctuate, so you can sharpen your investment skills as you keep your eye on the state of the investment and evaluate the best times to buy or sell.

Municipal Bond Funds

Municipal bond funds are invested in local and state governments rather than the federal government. Therefore, your interest is exempt from federal income taxes and may be exempt from local and state taxes as well. You can purchase these bonds through a mutual fund, exchange-traded fund (ETF), or individually. This investment diversifies your exposure while keeping your money relatively safe. You won’t lose your investment unless the local government goes bankrupt. Though possible, this is typically unlikely.

You can minimize the risk associated with this fund by selecting one that’s based on a large number of bonds. This is a highly liquid investment that you can buy and sell daily if you’d like.

Rewards Checking Accounts

A rewards checking account is one of the few ways that you can turn your checking account into an investment tool. This type of account, also referred to as a high-yield checking account, pays a high interest rate that can often beat out savings and money market accounts. Though you typically do not need to maintain a minimum balance to earn interest on your funds, banks will often place a cap on the total amount that you can get interest from.

Carefully read the account’s terms to maximize this investment. Some banks require a certain number of monthly debit card transactions for you to qualify for the highest interest rate. You may also be required to set up direct deposits or automatic bill payments to take full advantage of this type of account.

Dividend-Paying Stocks

If you’re looking for safe investments in the stock market, dividend-paying stocks are one of the best options. These stocks pay shareholders a dividend on a regular basis. These payments are usually made quarterly. This gives you the opportunity to make money from your stocks both in the short term and long term.

As with any stock, there is a degree of risk with this investment. The dividends won’t necessarily cover your losses if the stock plummets. It’s important to research your options carefully and select stocks that you’re comfortable with. If you’re entering the stock market for the first time, dividend-paying stocks are one of the safest places to begin.

Treasury Inflation-Protected Securities (TIPS)

The value of TIPS is based on the consumer price index (CPI). Your security principal rises and falls with the associated inflation and deflation. This security typically has a term of five, 10, or 30 years. When it matures, you will receive either your original principal or the adjusted sum, whichever is larger. This is a relatively safe way to invest your money since you don’t risk getting less than your principal upon the maturity date.

You can sell TIPS before their maturity dates, but you risk taking a loss on the investment. You can purchase these through banks, brokers, or the Treasury. You can also buy TIPS at auction with a competitive or non-competitive bid. This type of investment is more involved than many, so you’ll want to thoroughly research your options before making the purchase.

Though you may eventually want to add some riskier options to your portfolio for their potential gains, a stable base of safe investments like these is a good way to get started. Learn more about how you can excel at trading with an informational e-book.

Jeff Williams

Jeff Williams is a full-time day trader with over 15 years experience. Thousands of entry-level and experienced traders alike – day-traders and swing-trade small cap stock traders – credit Jeff with guiding them to turning small accounts into big accounts.

Jeff’s "Small Account Challenge" shows people how to transform accounts from a few thousand dollars into $25k, $50k or even $100k.

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