Saving and investing can be a complicated and mundane venture for many people. As part of the process, you need to run calculations, read the fine print, and let your money sit there without being used for gratifying things and experiences. It’s not hard to see why historically, Americans maintain a minuscule personal savings rate.
That said, you may be ready to begin taking your finances seriously. If you do not want to buy and sell stocks, but you also do not want to allow your funds to lie dormant in a checking account, you need to consider your options. Indeed, the finance industry is vast, and there are many great products available to even the most hands-off investor, to grow your money over time.
Below we’re sharing seven financial accounts that grow your money with low user management:
1. High-Yield Savings Accounts
In today’s environment of ultra-low interest rates, it might seem impossible to find high-yield savings accounts. If all the major financial institutions are paying 0.05 percent on your cash deposits, how could you get anything remotely close to one or two percent? Surprisingly, there are savings accounts like this.
Many banks – multi-national and community – offer special high-yield savings accounts. But there may be some caveats before you can take advantage of a rate that as much as 25 times a normal account.
- You may only open a high-yield savings account at a bank where you are already a customer.
- There might be an initial deposit requirement or a minimum balance requirement.
- Fees might be high if there are too many transactions or you use the account for debit withdrawals.
To access the highest possible return from a high-yield savings account, you may need to explore options through an online financial institution.
2. Money Market Account
Is a money market account the right investment vehicle for you and your money?
A money market account, or MMA, is an interest-bearing account offered by a financial institution or credit union. These accounts come with many restrictions, such as a limited number of transactions per month, but their appeal is that they pay a higher rate than regular savings accounts.
Remember, an MMA is different from a money market fund.
This is a type of account that invests in highly liquid near-term products, such as high-rated and debt-based investments (U.S. Treasurys, for example). Since they are considered low risk, the returns are small, but they can still grow your money without too much management.
3. All-In-One Checking and Investing Account
An all-in-one checking and investing account such as the one offered by Finch is a relatively new financial product on the market. It is essentially an upgrade from your old checking account as it offers two distinct features: it automatically invests your balance into a personalized portfolio of ETFs, and it allows you to earn investment returns directly on your balance. This is all while allowing you to retain instant access to your money.
Indeed, money in your checking account, no matter how much, is not doing anything for you. But with an all-in-one checking and investing account, your money can finally work for you, while still being available when
you need it.
4. U.S. Treasury Bills and Notes
Do you want to get a few dollars from an investment in a short period? You do not need to do much to earn a few bucks.
You may want to look into Treasury bills (T-bills). These are bonds that pay a fixed rate of interest to investors for holding T-bills with maturities of only a few days or up to a maximum of 52 weeks. Indeed, the longer the maturity, the higher the interest rate, but if you do not want to hold onto a 20- or 30-year Treasury, you could consider T-bills.
5. Certificates of Deposits
A certificate of deposit, or CD, is a savings account that holds a fixed sum of money for a specified period, from 30 days to five years. When you redeem your CD, you receive the principal plus interest.
But how much interest could you get from these CDs? Very little, unfortunately.
The best method, however, is to employ CD laddering. This way, you do not need to lock in your money for an extended period, and you can take advantage of higher rates (if they ever materialize).
So, how does CD laddering work? First, you divide your savings into five separate CDs, ranging from one to five years). Every year, one of your CDs will mature, and you reinvest the money into another five-year term. That’s it!
6. Index Funds
When you want to grow your money like the power players on Wall Street, but you lack the time, know-how, and resources, where do you turn to?
Well, you could take legendary billionaire Warren Buffett’s advice: Index funds.
An index fund is a portfolio of stocks that mirror a benchmark index’s composition and performance, such as the S&P 500 or the Nasdaq Composite Index. Since the fund echoes these indexes, there is little management, which also means lower expenses and fees (all great things for a hands-off investor!).
7. Short-Term Corporate Bonds
The corporate bond market was given a lifeline this past spring when the Federal Reserve announced that it would be purchasing these investments through exchange-traded funds (ETFs) in the secondary market.
The result? This segment of the broader financial market not only survived the coronavirus-induced bloodbath, but it thrived. For example, the iShares iBoxx $ Inv Grade Corporate Bond ETF (LQD) cratered to a little more than $100 in March, but it later soared to a record high of $140.
Like Treasurys, you can grow your money through low-risk short-term corporate bonds. And you can do this through the ETF market, earning money from higher shares and dividends.
Unsure where to look? Here are some great short-term corporate bond ETFs:
- Vanguard Short-Term Corporate Bond ETF (VCSH): 4.72% yield
- Invesco Ultra Short Duration ETF (GSY): 1.80% yield
- iShares Short-Term Corporate Bond ETF (IGSB): 4.96% yield
- WisdomTree Fundamental U.S. Short Term Corporate Bond Fund (SFIG): 4.14% yield
- iShares iBonds Dec 2021 Corporate ETF (IBDM): 2.11% yield
Can you “set it and forget it” when it comes to your money? Most of us already do when we park our capital in a savings account or let it sit idle in a checking account. But is it possible to invest and grow your money with little user management? Yes. You might not experience the same high-volume return possible with an actively managed portfolio, but you can still watch your money grow at a rate higher than most savings accounts. What are you waiting for?