Today’s market volatility is the worst that it has been in over 10 years. The average investor needs to be more diligent and discerning when choosing their investments. The S&P500 index fell 19% in 2022. The worst performance recorded since 2008. The NASDAQ experienced an even worse performance with a loss of 33.1%. With losses like these, many are choosing to put their money in safer assets where returns are generous, but the risk is low. If you’re one of these investors here are some risk-free savings account alternatives for beginners that you can consider.
High Yield Savings
High yield savings accounts are depositary accounts that offer relatively high interest rates. These are like savings accounts in that your money is easily accessible. These accounts can offer interest rates over 10x the average savings rate. On the other hand, there is a very low limit on the number of withdrawals each month. This is a great alternative to a savings account because it is also FDIC insured.
CDs
A Certificate of Deposit is a low-risk savings account that beginner savers can look into. These are also depositary accounts that offer above average savings returns. The downside of this investment however is that you have to maintain the account for a specified period. Otherwise, you’ll be charged a penalty. These accounts are FDIC insured.
Money Market Account
Money market account is a type of savings account that offers higher than average returns. A benefit to this account is investors have easy access to their money in case of emergencies. Additionally, these type of accounts offer check writing privileges. There are some restrictions however that savers need to be aware of. For example, there is a limit on the number of withdrawals each month and they may require relatively higher minimum deposit requirement. Money market accounts are great savings account alternatives for beginners.
Treasuries
Treasuries are low risk investments issued by the U.S. government. These are regarded as highly liquid investments with guaranteed returns. The advantage of looking into U.S. treasuries is that there are diverse offerings to explore with varying benefits. Here are two types of treasury securities that offer protection in the high inflationary environment we are currently in:
Treasury Inflation Protection Securities
These are a type of bond issued by the US government that provides protection against inflation. What makes these assets great tools against inflation is the principal of TIPS rise with inflation and falls with deflation. Therefore, if inflation occurs, you will receive an adjusted principal amount.
Series I Savings Bonds
Series I Savings Bonds (I Bonds) are debt securities issued by the U.S. federal government. By purchasing I Bonds you’re lending the government money in exchange for fixed semiannual interest payments. I Bonds are unique in that their interest rate is a combination of a fixed rate and an inflation rate. The latter is adjusted twice annually for inflation. When buying I Bonds keep in mind that you can only redeem them after 1 year of purchase. If you redeem them before 5 years, there is a penalty of forfeiting the previous 3 months interest. Here are more reasons to consider adding I Bonds to your portfolio [Here’s Why I’m Buying I Bonds].
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