So you’ve finally been able to start putting money away for the next rainy day. You’ve been socking it away into an ordinary savings account where you might be earning ½ % interest or less. Are you wondering what you could be doing with your savings that might make it start to grow? If you’re not, you should be. Here are a few ways you can invest your money and earn up to 5% while protecting your savings.
Preferred stocks are assets that look a lot more like bonds than traditional stocks. The reason is because the dividend, or the money paid to you as the stockholder, is almost always fixed. Preferred stocks are almost always issued by banks, insurers and investment trusts, though other companies can issue them as well. Some preferred stocks pay out monthly and the dividend is usually much higher than those issued by common stocks. The main drawback is that as the interest rate rises, the preferred stock will lose value. Plus, a company can suspend dividends on these stocks if they run into turbulent financial periods.
Blue Chip Stocks
Blue chip stocks are another investment you can make that will keep your risk relatively low while earning you a nice return. These companies have been around and been successful for many years, weathering financial downturns and other crises well. Some of the safest investments are in utilities, energy, and drug companies. These companies generally weather economic downturns well.
REITs or real estate investment trusts are generally a good bet when it comes to earning a nice return on your investment. These can be a little shakier than others, though, since most are backed by properties. The safest REITs to invest in are the ones that hold healthcare related properties such as hospitals and other medical buildings. This is because the medical field is a growth industry while other sectors of the real estate market are highly susceptible to economic swings.
One kind of hybrid REIT is Annaly (you can read more about this product here). This REIT-like investment does not depend on the real estate market to back it. As a matter of fact, this product doesn’t own one property at all. It buys federally guaranteed mortgage securities. This is a great opportunity to earn a nice return as long as the Federal Reserve holds interest rates steady because Annaly makes tons of cash; and because of its structure, it’s forced to pay out 90% or more of its net income to its shareholders. The current return rate on this investment is around 15%.
Online Savings Accounts
For those of you who shy away from traditional investing, take another look at where you are putting your money. Online savings accounts like EverBank, HSBC Advance and Ally Bank offer much higher interest rates than traditional brick and mortar banks, up to 200% better. Most traditional savings accounts offer under 1% interest, and many don’t offer anything at all. Online savings account products offer anywhere from 1% up to 3% all while keeping your money safe and liquid, meaning that your deposits are insured by the FDIC as long as the institution is a member. Also, you can remove your funds at any time in any amount without penalty.
Another idea for the investment-shy individual is savings bonds. Savings bonds are backed by the federal government and are guaranteed to earn a better rate than your savings account, though you’re going to have to wait several years to realize the gain.