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HIGH-YIELD INVESTMENT OPTIONS

Investing

BY: Aaron Crowe
February 19, 2022
Joy Wallet is advertiser-supported: we may earn compensation from the products
and offers mentioned in this article. However, any expressed opinions are our
own and aren't influenced by compensation. To read our full disclosure, click
here.
Interest from my checking account isn’t going to make my family rich. In 2021 my
wife and I earned 44 cents from the account. It’s rare to have a checking
account that pays any interest, so I’m slightly happy to have it.
The 0.01% annual percentage yield (APY) on the checking account is fine with me
because we use it for our daily expenses, and don’t put long-term savings into
it. Money comes in and goes out of it pretty quickly, and I don’t expect any
return on it at all.
For bigger returns, you’ve got to look elsewhere. Some investments we have are
for long-term goals, and others we stay away from as too risky. The stock
market is a big part of our personal financial investments, but we’re not day
traders buying GameStop.
Whatever your risk tolerance, there are higher risk and lower-risk investments
that can make your money work for you. If your checking account is doing its job
so you can pay your bills each month, and you have extra money at the end of the
month, then some of these may help in building wealth and reaching
your financial goals.
Jump To
 * Overview of the best high yield investment options
 * The best high yield investment options
 * High-yield savings account
 * Certificates of deposit
 * Money market accounts
 * Dividend stocks
 * S&P 500 Index
 * Exchange-traded funds (ETFs)
 * Mutual funds
 * Corporate bonds
 * Government bonds
 * Municipal bonds
 * Cryptocurrency
 * Real estate investment trusts (REITs)
 * Roth IRA
 * Summary of the best high yield investment options
 * FAQs
 * The bottom line




OVERVIEW OF THE BEST HIGH YIELD INVESTMENT OPTIONS

Product Best For High-yield savings account Safety Certificates of deposit
Stashing $ for months or longer Money market accounts Need access to $
occasionally Dividend stocks Income Exchange traded funds Low cost Mutual funds
Retirement Corporate bonds Interest income Government bonds Low risk Municipal
bonds Interest exempt from federal tax Cryptocurrency Risk-seeking investors
Real estate investment trusts Real estate investment diversity Roth IRA
Tax-free withdrawals at retirement


THE BEST HIGH YIELD INVESTMENT OPTIONS


HIGH-YIELD SAVINGS ACCOUNT

A savings account, whether high yield or not, is one of the safest
investments anyone can make. Most banks are insured by the Federal Deposit
Insurance Corporation, or FDIC, for up to $250,000 in losses per customer at
each bank they have an account at.
The national average interest rate paid on a savings account is 0.06%, according
to the FDIC, and an interest checking account pays 0.03%. Those aren’t much of
an incentive to open a savings account, but high-yield savings accounts pay
0.50% APY or better.
They can be found at brick-and-mortar banks and credit unions, though you’re
more likely to find a higher rate of return at online-only banks. Savings
accounts have high liquidity, meaning you can withdraw your money anytime
without paying a penalty.
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CERTIFICATES OF DEPOSIT

Certificates of deposit, or CDs, usually have higher interest rates than savings
accounts. CDs are federally insured and are set to maturity dates from several
weeks to years. Most CDs charge a penalty for withdrawing money before it
matures, meaning they’re not very liquid investments. Putting money from
an emergency fund could be risky if you need the money quickly.
The longer a CD has to mature, the higher the interest rate it pays. A one-month
CD pays 0.03%, compared to 0.28% for a 60-month CD, according to the FDIC.
CDs should offer higher returns than most savings accounts, though they may be
comparable. Much higher rates are often available from online banks. If you have
money you don’t need access to in a year or so, CDs are a safe, reliable
investment.


MONEY MARKET ACCOUNTS

Money market accounts are similar to a savings account, adding the ability to
write checks or use a debit card with the account.
Only six transactions per month can be made on the account, so if you expect to
make more than one deposit each week and write more than two checks per month,
then you could exceed it and have to close the account or convert it to
a checking account.
The national interest rate on a money market account is 0.08%, according to the
FDIC. That’s slightly better than the national average on a savings account.


DIVIDEND STOCKS

Buying individual stocks is one way to invest in the U.S. stock market, but it’s
best for intermediate and advanced investors who can stomach market volatility.
Dividend stocks, whether through a fund or bought individually, can provide
regular income through dividend payments. Dividends are part of a company’s
profit paid out to shareholders, usually once per quarter. Holding on to these
stocks as long-term investments can earn you money as the stock hopefully grows,
and short-term cash can be pulled out for income or reinvested in the stock.
Dividends obviously vary by company, so you may find better yields by buying a
group of dividend stocks, such as through a mutual fund or exchange-traded
funds, or ETFs. A group of dividend stocks recommended by Kiplinger, for
example, paid an average yield of 3.2%, more than double the S&P 500’s 1.4%
yield. The average yield on S&P 500 index companies that pay a dividend is
historically between 2-5%.


S&P 500 INDEX

Index funds are a good way to spread risk through diversification, and the S&P
500 Index is a benchmark for the stock market as a whole. 
The S&P 500 Index fund is based on about 500 of the largest companies in
America, such as Amazon, Apple, Microsoft, and Alphabet. It includes companies
from every industry, providing easy diversity for investors.
It has had a historic annualized return of 10.5% from its inception in 1957
through 2021. Its diversification makes it less risky than buying individual
stocks, though it has more volatility than bonds and bank products.


EXCHANGE-TRADED FUNDS (ETFS)

Exchange-traded funds, or ETFs, are one way to invest in the S&P 500 Index, or
other funds, through a mix of securities that are traded on an exchange just
like a stock is traded. An ETF can track anything from an individual commodity
to a number of securities, or investment strategies.
ETFs usually have lower expense ratios and broker commissions than
buying individual stocks do.
Based on the S&P 500, which is a benchmark for returns and has an annualized
return of 10.5% since its inception, the average return for an ETF is around 10%
also.
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MUTUAL FUNDS

Like ETFs, mutual funds also manage pools of individual securities, such as
stocks or bonds, that provide a diversified portfolio. Mutual funds can usually
be bought without trading commissions, which helps you save money if you invest
in one frequently through dollar-cost averaging.
Retirement accounts such as a 401(k) are often invested in mutual funds. You can
also buy them as an individual investor.
Mutual funds average or exceed 12% long-term growth.


CORPORATE BONDS

Corporations may try to raise money by selling corporate bonds to investors,
which can be packaged into bond funds with hundreds of other companies’
bonds. Short-term corporate bonds may be a good way to test them out because
they have an average maturity of one to five years.
Corporate bonds can help retirees and other investors looking for cash flow
through interest income and not as much risk as stocks. They’re not insured by
the FDIC, and often have higher returns than government and municipal bonds,
which we’ll review next. Buying bond funds is one way to diversify bond
holdings.
Their risk is high, however, because companies can have their credit rating
downgraded or have financial problems that lead to defaulting on the bonds.
The 1-5 year corporate bond index had a 1.28% yield in 2021, according
to Charles Schwab.


GOVERNMENT BONDS

Government bonds come in many variations as a debt obligation issued by the U.S.
government to support government spending. 
They mature up to 30 years after they’re sold, and pay lower returns than stocks
and mutual funds traditionally do. Government bonds pay interest to investors
twice a year until they reach maturity.
They’re sometimes called Treasury bonds or “T-bonds” because they’re issued by
the U.S. Department of the Treasury, just as T-Bills, or Treasury bills, are.
Both are considered some of the safest investments around because they’re backed
by the federal government.
Investment researcher Morningstar says government bonds have historically
returned between 5% and 6%. However, interest rates have been much lower
recently.


MUNICIPAL BONDS

Municipal bonds are issued by state and local governments and have slightly
better returns than Treasury bonds with a little more risk. Like corporations,
cities can file for bankruptcy too, leaving bondholders with big losses. But
that’s pretty rare.
A big benefit is that municipal bonds can be tax-free. Interest earned
on municipal bonds is exempt from federal tax, and some are also exempt from
state and local taxes too. Their maturity date is in 10, 20, or 30 years.
The return rate on municipal bonds varies widely from year to year, and among
municipalities. The Bloomberg Municipal Bond Index has a one-year return of
-1.58%. It lost money as an index and is often used to gauge what municipal
bonds are doing overall, but separate munis could be doing very well.
Since 1993, that same index has had a range of losing 5.2% in 1994 to a 17.4%
return in 1995. In 2018 it gained 1.3%.
For a national average, the website FMSbonds says that AAA-rated muni bonds that
mature in 10 years pay 1.45% interest.


CRYPTOCURRENCY

If you have a high-risk tolerance, then cryptocurrency could be for you. The
price of this digital currency depends solely on what traders will pay. It’s not
backed by a government, as the U.S. dollar is, and some traders have been hacked
and had their investment stolen.
Bitcoin is the most widely used cryptocurrency, soaring three-fold over a year
in early 2021. Over the past year, it has had a 52-week low of around $30,000,
and a high of around $67,000. In early February Bitcoin sold for about $44,000.
Cryptocurrency has the potential to drop to zero in value and to rise incredibly
high over a short time. In 2021, cryptocurrency returns varied by currency. The
highest was Terra with a return of 12,967% in 2021, while the lowest was Bitcoin
with a 59% return.


REAL ESTATE INVESTMENT TRUSTS (REITS)

Real estate investment trusts, or REITs, are companies that own and usually
operate income-producing real estate. REITs own apartment buildings, offices,
shopping centers, hotels, and any other type of real estate you can think of.
Most trade on major stock exchanges. Profits from the company are paid as
dividends to investors, as are profits from any real estate sales. To qualify as
securities, REITs must payout at least 90% of their net earnings to shareholders
as dividends.
In 2021, REITs are up nearly 29% for the year. The average yield on REITs is
2.9%, according to Kiplinger.
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ROTH IRA

A Roth IRA is one of the best long-term investments you can make for one simple
reason: funding your retirement.
Taxes are paid on money contributed to this retirement account, and all future
withdrawals are tax-free. That’s the biggest distinction between a Roth IRA and
a traditional individual retirement account, or IRA. A Roth IRA is usually a
better choice if you think your tax rate will be in retirement than it is now.
You choose the investments for the account, such as stocks and bonds. Roth
IRAs have historically had average annual returns between 7% and 10%. That’s a
good track record that can make retirement affordable.


SUMMARY OF THE BEST HIGH YIELD INVESTMENT OPTIONS

Product Return Risk Where to open High-yield savings 0.50% APY
 Low, FDIC-insured  Bank, credit union CDs 0.03-0.28% Low, FDIC-insured Bank,
credit union Money market accounts 0.08% Low, FDIC-insured Bank, credit union
Dividend stocks 2-5% Moderate Mutual fund, ETF S&P 500 Index 10.5% Low
Brokerages ETFs 10% Low Brokerages Mutual funds 12% Low to moderate Brokerages
Corporate bonds 1.28% Moderate Brokerages Government bonds 5-6% Low
TreasuryDirect.gov Municipal bonds 1.45% Low to moderate Banks, bond
dealers, brokerages Cryptocurrency 59-12,967% High Brokerages REITs 2.9%
Moderate Brokerages Roth IRA  7-10% Low to moderate Brokerages

Note: Return is as of Feb. 9, 2022, and may have changed. Check your financial
institution for the latest APY.


FAQS

How do I factor in risk?
Your risk tolerance can affect the yield of your investments. Higher
risk investments usually offer higher returns, while low-risk investments
usually have lower returns. A conservative investment
portfolio with lower-risk possibilities can make market fluctuations easier to
get through, but it can also lower your investment returns. One way to combat
this is with a diversified portfolio with CDs, bonds, stocks, REITs and
other types of investments. 
How do I factor in my time horizon?
How much time you have to invest in relation to your goals is another part of
determining how much risk you want to take. Needing the money in a week or 30
years can lead you to a savings or retirement account. A goal of saving for a
down payment on a house in three years may point you toward investing in the S&P
500 Index or a money market account. A longer time horizon can allow you to take
more risks.
How much should I invest?
This is a personal question and depends on your finances, goals, acceptable
risks, and timeline. The more money you can afford to invest, the bigger chance
you have of growing it. But there’s also the chance of losing your money.
The stock market can be especially volatile, and a company that you thought was
a good investment today can go bankrupt somewhere down the road. A less
worrisome way to invest is to invest a certain amount from every paycheck. This
allows dollar-cost averaging to work for you by spreading the purchase amounts
over years. Regular contributions to a retirement account can be the best way to
fund your retirement goal.
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THE BOTTOM LINE

Choosing high-yield investment options shouldn’t be a game of roulette. With an
understanding of the average rate of return and investment strategies aimed at
when you need the money you’re investing, you should be able to choose safe
investments that meet your needs.
As I can tell you from experience, it’s not a great feeling to see the interest
paid on your savings account add up to a handful of pennies. Making your money
work for you through higher returns is much more satisfying.
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As tenants pay their rent, you could earn money through quarterly dividend
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Disclaimer: Joy Wallet is an independent publisher and comparison service, not
an investment advisor, financial advisor, loan broker, insurance producer, or
insurance broker. Its articles, interactive tools and other content are provided
to you for free, as self-help tools and for informational purposes only. They
are not intended to provide investment advice. Joy Wallet does not and cannot
guarantee the accuracy or applicability of any information in regard to your
individual circumstances. We encourage you to seek personalized advice from
qualified professionals regarding specific investment issues. Featured estimates
are based on past market performance, and past performance is not a guarantee of
future performance. Our site doesn’t feature every company or financial product
available on the market. We are compensated by our partners, which may influence
which products we review and write about (and where those products appear on our
site), but it in no way affects our recommendations or advice. Our editorials
are grounded on independent research. Our partners cannot pay us to guarantee
favorable reviews of their products or services.

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 1. See the online provider's application for details about terms and
    conditions. Reasonable efforts have been made by Credit Sesame to maintain
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 2. Winnings data from between '2020-07-01' and '2021-06-30'. Figures provided
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 3. Figures provided by Fundrise: https://fundrise.com/investor-update/708/view.
    Past performance is not a guarantee of future performance.
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    worth of shares of Fundrise Real Estate Interval Fund, LLC (the “Share
    Bonus”) when opening a “Qualifying New Account” (as defined below). The
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 5. Figures provided by Fundrise: https://fundrise.com/investor-update/708/view.
    Joy Wallet does not and cannot guarantee the accuracy or applicability of
    any information in regard to your individual circumstances. We encourage you
    to seek personalized advice from qualified professionals regarding specific
    investment issues. Featured estimates are based on past market performance,
    and past performance is not a guarantee of future performance.
 6. Terms and conditions apply: https://fundrise.com/legal/promo

BY: Aaron Crowe
February 19, 2022
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