When the markets turn volatile, safe investments often get a moment in the sun — and for good reason. FDIC-insured deposit accounts and other low-risk investments can help cautious investors combat inflation while keeping their savings secure.
Remember, though: Low risk generally means low return, which means these accounts make the most sense when you’re investing for the short term and could need to withdraw the money sometime soon. (Our full list of investment options covers longer-term and riskier investments.)
If you’re investing for the long term — think goals five or more years away — low-cost equity investments such as index funds are often a better choice. (If you’re unsure why this is, read up on the differences between short-term and long-term investing goals.)
» Concerned about the economy? Learn what to invest in during a recession.
Lowest-risk ways to grow money
The investments below all come with insurance, which make their risks practically nonexistent. But their yields are also very low compared with the long-term returns you might get by investing in the stock market.
Money market accounts
What are they? These are essentially savings accounts, but they allow you to spend directly from the account (unlike a savings account), with a limited number of transactions per month.
Current returns: See our best money market accounts page for up-to-date rates.
What's safe about them? These accounts are backed by the Federal Deposit Insurance Corporation (FDIC), which guarantees deposits up to $250,000 per institution, per investor.
Where can I get one? Most banks offer money market accounts, but the national average APY per the FDIC is currently just 0.06% (this rate is variable and may change). However, many online banks offer substantially higher rates.
Access expert picks for mutual funds, stocks and ETFs with a 14-day free trial* of Morningstar Premium.
*Paid subscription thereafter, see Morningstar.com for details.
END OF ADVERTISEMENT
Online high-yield savings accounts
What are they? These are fundamentally similar to typical savings accounts, but by operating strictly online, these banks don’t have to spend money on brick-and-mortar operations. In turn, they pass these savings on to you in the form of higher APYs.
Current returns: See NerdWallet’s best high-yield online savings accounts for up-to-date rates.
What's safe about them? Though they don’t come from a traditional brick-and-mortar bank, these accounts are still FDIC-insured.
Where can I get one? Everything is done online, from choosing a bank, to enrolling, to transferring money into it.
Cash management accounts
What are they? The nature of these accounts varies slightly between providers today, but most of these products behave similarly to an online savings account. These have become more popular among online brokerages and robo-advisors lately, largely because they make it easy for their customers to move money seamlessly to and from an investing account.
Current returns: See NerdWallet’s best cash management accounts for current APYs.
What's safe about them? Cash management accounts are offered by non-bank financial institutions, yet through partnerships with banks, they’re still backed by the FDIC.
Where can I get one? At an online brokerage or robo-advisor.
Certificates of deposit (CDs)
What are they? Banks offer CDs because it gives them a set amount of cash upfront for a set period of time, which they can use to lend to other customers or invest. To incentivize you to start a CD, they often offer higher rates than savings accounts. The downside? If you need to access the cash in your CD, you’ll be hit with an early withdrawal penalty, which often consists of a few months’ interest.
Current returns: See NerdWallet’s list of the Best CD rates.
What's safe about them? With these you put your money into an FDIC-insured account for a specified period, during which you’ll receive a guaranteed interest rate.
Where can I get one? Most banks offer CDs; however, yields tend to be much higher through online banks, for the same reasons noted above.
Treasury notes, bills and bonds
What are they? When you purchase Treasury notes, bills and bonds, you’re essentially giving a loan to the government, and it’s paying you interest on that loan at regular intervals. If you hold it for the full period, you’ll also get back the bond’s face value.
The biggest difference between bills, notes and bonds is how long the government holds your money, and your interest rate.
Bills are paid back in under a year.
Notes are paid back in 2, 3, 5, 7 or 10 years.
Bonds are paid back in 20 or 30 years.
Current returns: See the latest Treasury rates.
What's safe about them? Treasury securities (bills, notes and bonds) are backed by the “full faith and credit of the U.S. Government.” When purchasing them from the Treasury, you’ll get any regular interest payments promised to you so long as you own the bond, plus the face value of the bond if you hold it until maturity.
Alternatively, you can also sell your bond if you wish, though you’ll lose out on the interest payments you would have had until it matured.
Where can I get one? From TreasuryDirect.gov, or through an online broker.
Fixed-rate investments with low risk of principal loss
Unlike the options above, there are some risks to consider with each of the following, but they still fall on the lower-risk side of the investment spectrum.
For these investments, you’ll also need an online broker. First, learn how to choose the best one for you. Then, once you have a brokerage account, you can use its investment screener to help you shop for any of the investments below.
What are they? Much like government bonds, corporate bonds are like a small loan from you, but in this case to a specific company. The safest way to buy and benefit from bonds is to identify stable companies with a long track record of repaying their debt to bondholders.
Microsoft and Johnson & Johnson, for example, are two of the most highly rated companies in the world, and are very unlikely to default. When you buy a bond with a fixed interest rate from a high-quality company — and you plan to hold it until it matures — it’s generally considered a safe investment.
Current returns: 3% to 4% over the last 10 years, based on Moody's Daily Corporate AAA Bond Yield Averages.
What’s safe about them? Corporate bonds come with a promise from the company issuing them: to pay you a fixed interest rate over a specified period of time, and to pay back the principal amount at the end of that period. Typically, longer periods come with higher yields.
What’s the risk? If the company that issues the bond declares bankruptcy, it can default on its debt to you, meaning your fixed income disappears. But for strong, established companies, this risk can be relatively low.
Where can I get one? At an online broker.
» Want to learn more? See how fixed-income investments could fit into your portfolio.
What are they? Ownership shares of a company that offer the owner fixed payments.
Current returns: Varies by company.
What’s safe about them? Similar to bonds, preferred stocks offer a fixed return, which is often paid to investors quarterly. For example, if the share price is $100 and the annual dividend is $5, the dividend yield is 5%.
With most preferred stock, you’ll receive your dividend at the same rate you were promised when you purchased it, even if the market value of the stock falls. This is a difference from dividends of common stock, which are based on the stock’s fluctuating value, and aren’t fixed. See our guide to preferred stocks for a deeper dive into these investment vehicles.
What’s the risk? Paying dividends is at the discretion of each company, and they can forgo payments in times of severe austerity — though most companies try very hard to avoid this, because it’s seen as a distress signal for the business. If the company goes bankrupt, bondholders are paid before preferred stockholders.
Also worth noting: The market value of preferred stocks tends to appreciate more slowly than common stocks from the same company. As with bonds, it’s often fluctuating interest rates — not company performance — that most heavily influence the value of preferred stock.
Where can I get one? At an online broker.
» Access investment research: Read our review of Morningstar
Unimpressed with the yields above and willing to take on a little more risk for a higher potential return? Explore the options below. While they come with some risk of principal loss, they also offer much higher potential returns than investments listed above, and their long-term risks — especially in the case of mutual funds — are often relatively low.
Dividend-paying common stocks
What are they? Ownership shares of a company that routinely pay owners a portion of the company's profits.
Current returns: See our list of high-dividend stocks for recent figures.
What’s safe about them? When companies offer dividend-paying stocks, they pay you a specified amount on a regular basis based on how many shares you own, just like the preferred stock example above. This is typically paid out in cash quarterly or monthly.
What’s the risk? The same risks of investing in any stock apply to dividend stocks. When the price of common stock falls, the amount you’ll receive in dividends can fall, too — and that's in addition to the money you lose if you eventually need to sell the stock for less than you purchased it for.
Companies are under no legal obligation to pay dividends to common stockholders, and it’s not guaranteed income, as a government bond is. If the company declares bankruptcy, dividends on common stock are last on the list to be paid back, behind bondholders and preferred stockholders.
Where can I get one? At an online broker.
» Learn more. Which stocks are best during a recession?
What are they? A single investment that gives investors exposure to multiple assets.
Current returns: See our list of best-performing mutual funds for recent figures.
What’s safe about them? With mutual funds, you’re not buying a single investment, but rather a basket of investments. These bundles may comprise stocks from various companies, government or corporate bonds, commodities or a combination of investments. Buying shares of mutual funds can help you quickly build a properly diversified portfolio, as opposed to investing heavily in individual companies.
Many of the investments outlined above can be found in different funds. Dividend funds are made up of stocks with high and reliable dividends, bond funds are made up of various bonds, and so forth. Again, the goal here is diversification and spreading your risk.
What’s the risk? Just like individual stocks, mutual funds can fall sharply in the short term. These investment vehicles are better for long-term investors who are willing to weather the market’s inevitable ups and downs in exchange for stronger long-term growth prospects.
Some mutual funds are actively managed, resulting in higher fees. Over the long term, these higher fees can eat significantly into your returns. The key to improving your chances for higher returns is to look for inexpensive, passively managed funds with low expense ratios.
If you’re new to these instruments, consider learning more about mutual funds. NerdWallet recommends using low-cost mutual funds to form the basis of any long-term portfolio.
Where can I get one? Through an online broker.
This story updates the Treasury bond terms available.