If you’re like most people, your lifetime net worth will be primarily comprised of two major assets: your home and your retirement account.
But here’s the challenge with this set-up: Even though both the housing and stock markets have gone up over time (though the housing market still hasn’t fully recovered to its high point in July 2006), they can experience plenty of volatility in the short run.
That doesn’t mean these aren’t smart or worthy investments. Your 401K certainly is—and buying a home can be, too, if you choose well and don’t get in over your head.
But it’s important to pad your wealth plan with steady, reliable sources of income, too—and to have investments that you can tap in the short term if you need the money.
While it’s true that ultra-safe investment options like the three below may not offer hefty returns, you can rest assured that you won’t be staring down a loss when you need to access your cash. And they offer better returns than a traditional savings account.
1. Certificates of Deposit
A certificate of deposit, or CD, is a financial product that pays an interest rate that’s slightly higher than what you’d earn in a regular bank account. In exchange for higher returns, you promise not to withdraw your money for a specified amount of time—usually ranging from three months to five years.
You can buy CDs directly from your bank or credit union, although it pays to shop around for the best rates. For example, the average one-year CD recently yielded 0.29%, but by comparing rates online, you could boost your yield to 1.29%. Compare that to the average 0.5% being offered on traditional bank savings accounts as of this week.
(Regardless of the rate, though, don’t buy a CD unless you can afford to keep your money tied up for the full term, lest you pay a penalty—typically equal to several months’ worth of interest—for early withdrawal.)
Almost all CDs have FDIC insurance or NCUSIF insurance, for CDs issued by credit unions, which covers you in the unlikely event of your bank or credit union collapsing.
2. Treasuries
Treasuries are debt securities issued by the U.S. government. Because they are backed by the taxing power of the federal government, they are considered to be among the safest investments in the world.
Treasuries come in a few different varieties: Treasury bills (or T-bills) are issued with terms ranging from four to 52 weeks. Treasury notes may have terms as short as two years or as long as 10 years. Treasury bonds are only issued with 30-year terms. There’s no penalty for selling early—however, depending on the market, you may have to sell at a discount, and you’ll also sacrifice the remainder of potential gains.
Because Treasuries are safe, they offer a lower return than riskier debt instruments, such as corporate bonds. Still, a Treasury maturing in one year recently yielded 0.55%—more than the average savings account—and a 10-year Treasury recently yielded 1.58%. But an added bonus of Treasuries is that their interest payments are exempt from state and local—but not federal—income taxes.
You can buy Treasuries directly from the U.S. Department of the Treasury, through your bank or through your brokerage account.
3. Money Market Accounts
A money market account (MMA) is a bank account that typically pays a higher interest rate than a checking account, but comes with extra restrictions. As with a checking account, when you open an MMA, you’ll generally receive a debit card and checkbook. But federal regulations restrict you to making no more than six withdrawals per month, and your bank’s own rules may limit you to even fewer. There’s usually also a higher minimum balance requirement for MMAs compared to savings accounts. But they also tend to pay a little more in interest.
Top-yielding money-market accounts recently paid interest rates as high as 1.11% annually.