Safe Investments for Cash

Keep your cash safe.

Making your money grow is important, but making sure that money is safe can be even more critical. If you are building an emergency fund or saving for a major purchase, you cannot afford to put your funds at risk. You have several ways to keep your capital safe while still getting a small return on your investment.

Certificates of Deposit

Certificates of deposit are available at both banks and credit unions, and CDs provide absolute safety for both your principal and interest. As long as the bank you work with is fully insured by the FDIC, your cash is protected up to $250,000 per account. If you go with a credit union, make sure the institution is fully covered by the National Credit Union Administration. If it is, the same protection level applies. The interest rates on CDs vary with competition and market conditions, so shop around for the best deal. The rates on longer term CDs are generally higher than the rates on shorter term instruments, but you must keep your money tied up for a longer period to get that extra interest. If you plan to buy a CD, weigh the convenience of easy access to your money against the higher interest rate for a longer term certificate.

High-Yield Checking Accounts

If you are able to follow the rules and fulfill all the requirements, a high-yield checking account can be an excellent place to keep your extra cash. These high-yield checking accounts are offered by both brick and mortar banks and online ones. High-yield checking accounts can pay 10 times more than traditional ones, but they typically require a direct deposit and a minimum number of debit card transactions. Read the rules and the fine print carefully before you sign up.

Government Bond Funds

Government bonds and government bond funds are both safe places to stash extra cash. The money you invest in a government bond is backed by the full faith, power and taxing authority of the federal government, making it one of the safest investments. The trade-off is that the rates on government bonds are often quite low, sometimes lower than you could get by simply buying a CD. Compare rates carefully and choose the instrument that best meets your needs. You can open a free account directly with the U.S. Treasury (See resources) and use that account to purchase U.S. savings bonds, Treasury bills and other Treasury instruments.

Money Market Accounts

Money market accounts typically offer a higher rate of interest than savings accounts, but they usually come with higher balance requirements as well. Shop both online and off for a money market account, since many Internet banks offer excellent rates on their money markets. Read the fine print carefully to learn about restrictions on transactions and check writing. Some money market accounts limit the number of monthly transactions you can make. Some accounts allow you to write a limited number of checks, while others restrict those check writing privileges.

References

• CNN Money: Where to Stash Your Cash

Resources

• Treasury Direct Website