It has often been heard and advised to start investing at a young age. However, people tend to avoid dabbling in the world of investment either because of a lack of knowledge, or fear of losing one’s hard-earned cash in the wrong investment.
Well, before you close that door entirely, it is important to note that everyone starts somewhere. And every field has some beginner-friendly staples that help launch every rookie onto their journey. Just as aspiring writers cling to their thesaurus and religiously check their word count online, would-be investors can rely on these five safe investments to get them started.
Bank Savings Account
The first on our list is something you’ve definitely heard of before. Savings accounts are simple, convenient, flexible, and very easy to access. Savings accounts are great to have as an emergency fund. It guarantees safety since the FDIC insures the accounts. The FDIC will even arrange for you to get your money back in cases in which the bank cannot give you your money.
The only major downside to this incredibly safe option is that often safety doesn’t guarantee reward. Since savings accounts offer little interest rates, a minimal return is expected. If you were to invest in a savings account, it would be advised to look into online banks since they offer higher rates.
Money Market Accounts
Money Market Accounts (MMAs) are very similar to savings accounts in terms of ease of access, liquidity, and safety. However, MMAs only offer limited transactions by check. MMAs, like savings accounts, are also insured by the FDIC.
The big difference is that MMAs usually offers higher interest than savings accounts, thus better returns. However, it should be noted that MMAs generally require a higher opening amount compared to a basic savings account, and a minimum balance must be maintained, otherwise, a maintenance fee will be charged per month.
Money Market Mutual Funds
Although similar in name, do not confuse this with the money market account since they are very different. While MMAs are funds deposited at a bank, money market mutual funds revolve around shares. MMA interest rates are usually slightly lower than the money market fund’s total return.
Money Market Fund withdrawals are also typically available on-demand compared to the more restricted accessibility of MMAs. Money market funds also do not have the safety blanket that MMAs receive from the FDIC. However, it is still a low-risk investment that returns relatively low but reasonable rates.
Money market mutual funds are safe short-term investments that have fixed returns and short maturities. They are best used to temporarily house money or accumulate funds and aren’t advised for long-term retirement plans.
Money market funds typically have lower requirements than the average mutual fund. Shares can be bought and sold at any time, and it also follows a same-day settlement. It must be noted, though, that in money market mutual funds, interest rates fluctuate.
Certificates of Deposit
Certificates of deposit (CDs) are safe investments with reasonable interest. The major trade, however, is the price of time. A CD is a fixed-term loan, meaning the bank will keep your money for a specific amount of time, in which you are unable to touch or use it. In return, there is a guaranteed interest rate at the end of the loan term. The longer the loan term, the higher the interest rate.
Similar to the savings account and MMA, the CD is also insured by the FDIC. However, unlike the aforementioned safe investments, the CD offers a better interest rate. The only catch is the time restraint. Using the money before the end of the term would result in a penalty fee which could result in getting a lesser amount than initially placed.
Some CDs allow you to withdraw any time, however, these have lesser returns than a regular CD, but still somewhat higher than a savings or money market account. When investing in a CD, it is advised to carefully plan the time you are willing to lock the money up, preferably also considering your expenses in future months.
Treasury Issued Securities
Treasury issued securities are basically government loans and are thus extremely safe since they are backed up by the government. For treasury issued securities, the return of principal, along with interest, is a guarantee. Treasury issued securities are sold through auction and thus the price would vary depending on the time of the auction and the amount investors are willing to pay.
Investments come in three types: bills, notes, and bonds. The interest is exempt from state and local income tax, but not federal income tax. The downside of this safe investment is that it has a low return, and selling before maturity could lead to potential loss of money.