If you’re one of the rare few people who have cash to spare, there are plenty of better uses for it than stuffing it under your mattress for a rainy day. If not under your mattress, you might think that the second best option for your spare change is the trusty old savings account at your bank branch. You may be surprised to know that a traditional savings account will typically yield the least amount of interest out of any potential investment account.
Typical interest rates among savings accounts run from 0.01-0.3% among big name banks. And if you invest a nice chunk of change over time into one of these accounts, the annual yields wouldn’t be anything to write home about. Even at some of the best interest rates currently available for savings accounts (around 0.85%) will yield weak earnings over time. Sure, a savings account is safe, but there’s also no chance that you’ll create a sizeable nest egg off the interest unless you invest a lot of money early on. So what other options are out there?
Certificates of Deposit
The first place to look for saving and investing money is in a certificate of deposit, or CD. CDs differ from savings account in that you can’t touch the funds in a CD for a designated amount of time. Usually the length of a CD is designated by a bank in monthly or yearly increments; the longer period of time you have a CD, obviously, the more interest that that money will accrue over time. Most CDs have a fixed interest rate, so you know ahead of time how much interest will built on top of your original deposit. CDs are just as safe as a typical savings account, and they’re similarly insured by the federal government so as to protect against any unexpected loss of funds. The interest rates of a CD are better than a savings account, but they’re nothing stellar. If you’re unwilling to put your money into the market, check out a long term CD for the highest yield in potential interest.
Investment and Brokerage Accounts
If you want to entrust you money in the world market, try opening a brokerage or general investment account with your bank branch or a trusted financial management firm. The types of brokerage and investment account are as numerous as there are stars in the sky, but they all follow the same general rubric. The firms and banks that manage brokerage accounts take your money and divide it across a wide spectrum of investment items, from stocks and options with relatively high risk (and potentially high rewards) to reliably low yielding investments.
The idea behind these diversified brokerage accounts is that the investor should get some decent yield after their small amounts are placed in several investments at once. The potential for huge gains is much higher in a brokerage account than with either a CD or a savings account, but your investments can also be gone in the blink of an eye.
Peer to peer lending
Peer to peer lending is about the riskiest investment you can make with your savings, but, of course, it’s almost one of the most rewarding. Peer to peer lending basically refers to a process whereby you lend money directly to another person, without going through a bank of financial management firm. There are several safe and secure websites solely dedicated to this process, so it’s not an entirely dangerous undertaking. Sites like Prosper.com work to connect willing lenders with actual people in need of immediate loans who promise to make good on set repayment schedules. Surprisingly, the majority of the loans made through Prosper and sites like it are repaid in good time, and the lenders get a sizeable return on their investment. It’s a novel venture, and certainly not something suited for everyone, but it’s one way to get a quick return on investments large and small.
About the Author: This guest post is contributed by Lauren Bailey. She welcomes your comments at her email Id: blauren99 @gmail.com.