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6 low-risk investments for yield seekers

Keep your goals, risk tolerance, and time horizon in mind.

Key takeaways

  • From money market funds to Treasury securities, you have a range of relatively low-risk options to help grow your cash.
  • There's often a risk-reward trade-off. So be sure to do your homework before making any money moves.
  • You can add a safety net to your financial plan by diversifying your savings and investment vehicles.

Looking for some relatively low-risk ways to earn a respectable return? You're in luck. Aided by higher interest rates, you have some promising options.

Below, we outline a variety of low-risk investments and accounts that can offer a decent return—at least while interest rates are high. Before selecting one option—or a combination—be sure to consider your goals, risk tolerance, and investment horizon.

As you think through your strategy, keep in mind that there's often a risk-reward trade-off, says Richard Carter, a vice president of fixed income products and services at Fidelity Investments.

"Do your homework," Carter says. "Diversifying the investments in your portfolio can help manage risk even within what might be considered low-risk investments. When evaluating fixed income investments investors need to recognize that even low-risk investments may involve differences in the degree of credit or default risk, their amount of price volatility, and the timing of their payouts or return profile."

If you need guidance, a Fidelity professional can help you create a plan that's right for you.

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1. Certificates of deposit (CDs)

CDs provide reliable, fixed-rate returns on a lump sum of money over a fixed period of time, such as 6 months, 1 year, or 5 years. You can get a traditional CD at a bank or credit union where they are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Association (NCUA). They typically require a minimum deposit, and you’ll be hit with a penalty if you pull your money out before the CD matures.

You can also get brokered CDs—which are similar to bank CDs in that they are FDIC-insured but differ in that they are issued by banks to customers of brokerage companies as securities that can be held in a brokerage account. Brokered CDs are usually issued in large amounts to the brokerage, which it then divides into smaller parts for resale.

With a brokered CD, the broker’s underlying CD purchase from the bank is insured. So in the off chance insurance is needed, it will flow from the bank to the brokerage to the investor.

Brokered CDs are subject to the same FDIC limits as traditional CDs. But buying CDs through a brokerage firm can help you expand the amount of FDIC protection inside a brokerage account by buying multiple brokered CDs from different issuers.

Unlike traditional CDs, brokered CDs can be bought and sold on the secondary market before they mature. But doing so will incur trading fees and the price you are able to receive on the secondary market may be below the price you originally paid for the CD.

If you buy a brokered CD as a new issue CD at Fidelity, there are no management fees or transaction costs if you hold it to maturity.

Find CDs and the latest rates at Fidelity: Fixed Income, Bonds, and CDs

2. Money market funds

Money market funds are mutual funds that invest in short-term, low-risk assets like Treasury and government securities, commercial paper, or municipal debt—depending on the focus of the fund. Because their underlying investments are typically high quality, they are generally less volatile than other types of mutual funds, such as stock funds.1

Money market funds offer diversification and liquidity. Yet, as with any other investment, there are potential downsides, such as the fact that the income you receive on your investment will fluctuate both up and down based on the yields available on the securities in which money market mutual funds invest. In addition, the money is not protected by the FDIC or NCUA.

You can purchase a money market fund from a brokerage or a fund company. At Fidelity, any uninvested cash deposited in a Fidelity brokerage account is automatically put in a money market fund ().2

Find money market funds at Fidelity: Mutual Funds Research. (Choose money market funds from the dropdown menu under Asset Class and Category.)

3. Treasury securities

This investment option is backed by the US government and comes in 3 types: bills, notes, and bonds. Bills mature in one year or less, notes span up to 10 years, and bonds typically mature in 20 to 30 years. When you buy any of these, you're lending money to the US government. At the end of the term, you'll get your initial investment back—known as the principal, face value, or par value—plus the interest you've earned.

The government also offers Treasury Inflation-Protected Securities (TIPS.) TIPS have a fixed interest rate, but the principal adjusts with inflation or deflation, as measured by the Consumer Price Index (CPI). While TIPS can help you hedge against inflation, their interest rate is often lower than other Treasury securities.

You can also buy Treasury securities at a bank, credit union, brokerage, or directly through the government via its TreasuryDirect program. But Carter notes, "TreasuryDirect only allows you to invest in Treasury securities at the auction, as new issues. Fidelity allows you to purchase Treasurys at the auctions and to buy and sell Treasurys in the secondary market."

Find Treasury securities and the latest yields at Fidelity: Fixed Income, Bonds, and CDs

4. Agency bonds

Government agencies and government sponsored enterprises (GSEs) issue bonds as a way of raising money. GSEs include the Federal Home Loan Mortgage Corporation (Freddie Mac), the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Banks and the Federal Farm Credit Banks. Bonds issued by GSEs are subject to credit and default risk.

Federal agencies, on the other hand, such as the Government National Mortgage Association (Ginnie Mae), are part of the federal government and they are backed by the "full faith and credit" of the US government. Ginnie Mae, however, does not issue bonds directly; it insures or guarantees mortgage-backed securities originated by other lenders.

However, not all agencies have government backing; one example is the Tennessee Valley Authority (TVA). TVA bonds are not backed by the US government. Instead, they're backed by the revenues generated by the agency's projects.

Some of the potential benefits of agency/GSE bonds include slightly higher yields than US Treasurys of the same maturity and agency/GSE bonds tend be of high credit quality.

Find agency/GSE bonds and the latest yields at Fidelity: Fixed Income, Bonds, and CDs

5. Bond mutual funds and exchange-traded funds

These securities pool different bonds together, allowing you to easily diversify. Mutual funds and exchange-traded funds (ETFs) are composed of individual bonds that can mature. Yet, the funds and ETFs will themselves continue to trade, as bonds can be consistently bought and sold within them.

Mutual funds and ETFs are often managed by professionals and come in many different forms, so you can pick one that meets your objectives and risk tolerance. You'll also get liquidity since you won't be constrained by a maturity date. But you'll have to determine when the right time is for you to sell.

You'll get monthly returns, but they can be inconsistent. In addition, you may have an initial sales charge, as well as additional management fees. While the diversification of a mutual fund or ETF can help mitigate credit risk, their value can fluctuate based on market conditions, so they can be riskier than savings accounts or a government-backed bond, particularly if you have a short-term investment horizon and the mutual fund you're considering invests in longer-term, more volatile securities.

You can also get these securities through a brokerage or fund company.

Research bond funds and performance at Fidelity: Fixed Income, Bonds, and CDs

6. Deferred fixed annuity

This type of annuity is issued by insurance companies and typically provides investors with a guaranteed rate of return over a set period of time, such as 3 to 10 years. Your investment grows tax-deferred, compounds over time, and—a big benefit—there are no IRS contribution limits.3

Annuity guarantees are subject to the claims-paying ability of the issuing insurance company, rather than the FDIC. There are no up-front sales charges, but surrender charges and potentially a market value adjustment may apply if you opt out early. However, to provide access to your investment, these products generally allow 10% annual penalty-free withdrawals.4

A deferred fixed annuity is often best suited to investors who meet one or more of the following criteria:

  • Approaching or in retirement
  • Value principal guarantees, with limited liquidity and a competitive interest rate
  • Planning to use the assets after age 59½ (Any withdrawals by those under 59½ are subject to a 10% IRS tax penalty in addition to ordinary income tax.)

At Fidelity, you can compare the deferred fixed annuities available through The Fidelity Insurance Network®:5 Deferred fixed annuities

If you're interested, you can open one by calling an insurance licensed representative: 800-544-4702

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More to explore

Before investing in any mutual fund or exchange-traded fund, you should consider its investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus, an offering circular, or, if available, a summary prospectus containing this information. Read it carefully.

1. You could lose money by investing in a money market fund. An investment in a money market fund is not a bank account and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Before investing, always read a money market fund’s prospectus for policies specific to that fund.

2. When you open a new Fidelity retail brokerage account, we automatically put your uninvested cash into the Fidelity® Government Money Market Fund (unless you choose another option).

You could lose money by investing in a money market fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Fidelity Investments and its affiliates, the fund’s sponsor, have no legal obligation to provide financial support to money market funds and you should not expect that the sponsor will provide financial support to the fund at any time.

Fidelity’s government and US Treasury money market funds will not impose a fee upon the sale of your shares, nor temporarily suspend your ability to sell shares if the fund's weekly liquid assets fall below 30% of its total assets because of market conditions or other factors.

 3. The issuing insurance company reserves the right to limit contributions. 4. Withdrawals of taxable amounts from an annuity are subject to ordinary income tax and if withdrawn before age 59½ may be subject to 10% federal tax penalty.

5. 

Fidelity Insurance Agency, Inc. and, in the case of variable annuities, Fidelity Brokerage Services, Member NYSE, SIPC distribute insurance and annuity products that are issued by third-party insurance companies, which are not affiliated with any Fidelity Investments company. A contract’s financial guarantees are subject to the claims-paying ability of the issuing insurance company.

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

Exchange-traded products (ETPs) are subject to market volatility and the risks of their underlying securities, which may include the risks associated with investing in smaller companies, foreign securities, commodities, and fixed income investments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. ETPs that target a small universe of securities, such as a specific region or market sector, are generally subject to greater market volatility, as well as to the specific risks associated with that sector, region, or other focus. ETPs that use derivatives, leverage, or complex investment strategies are subject to additional risks. The return of an index ETP is usually different from that of the index it tracks because of fees, expenses, and tracking error. An ETP may trade at a premium or discount to its net asset value (NAV) (or indicative value in the case of exchange-traded notes). The degree of liquidity can vary significantly from one ETP to another and losses may be magnified if no liquid market exists for the ETP's shares when attempting to sell them. Each ETP has a unique risk profile, detailed in its prospectus, offering circular, or similar material, which should be considered carefully when making investment decisions.

Fidelity makes new issue CDs available without a separate transaction fee. Fidelity Brokerage Services LLC and National Financial Services LLC receive compensation for participating in the offering as a selling group member or underwriter.

For the purposes of FDIC insurance coverage limits, all depository assets of the account holder at the institution issuing the CD will generally be counted toward the aggregate limit (usually $250,000) for each applicable category of account. FDIC insurance does not cover market losses. All the new-issue brokered CDs Fidelity offers are FDIC insured. In some cases, CDs may be purchased on the secondary market at a price that reflects a premium to their principal value. This premium is ineligible for FDIC insurance. For details on FDIC insurance limits, visit FDIC.gov.

Lower yields - Treasury securities typically pay less interest than other securities in exchange for lower default or credit risk.

Interest rate risk - Treasuries are susceptible to fluctuations in interest rates, with the degree of volatility increasing with the amount of time until maturity. As rates rise, prices will typically decline.

Call risk - Some Treasury securities carry call provisions that allow the bonds to be retired prior to stated maturity. This typically occurs when rates fall.

Inflation risk - With relatively low yields, income produced by Treasuries may be lower than the rate of inflation. This does not apply to TIPS, which are inflation protected.

Credit or default risk - Investors need to be aware that all bonds have the risk of default. Investors should monitor current events, as well as the ratio of national debt to gross domestic product, Treasury yields, credit ratings, and the weaknesses of the dollar for signs that default risk may be rising.

Call risk—Some agency or GSE bonds have call features, which means they can be redeemed or paid off at the issuer’s discretion before maturity. Typically, an issuer will call a bond when interest rates fall, potentially leaving investors with a capital loss or loss in income and less favorable reinvestment options. For investors concerned about call risk, non-callable agency and GSE bonds are available in the marketplace.

Interest rate risk—Like all bonds, GSE and agency bonds are susceptible to fluctuations in interest rates. If interest rates rise, bond prices will generally decline, despite the lack of change in both the coupon and maturity. The degree of price volatility due to changes in interest rates is usually more pronounced for longer-term securities.

Credit and default risk—While agency and GSE bonds have relatively low credit risk, there is some risk that the issuing agency or GSE will default. Agency and GSE bonds are not an obligation of the U.S. government; credit and default risk is based on the individual issuer.

Inflation risk—While the yields on agency and GSE bonds are usually higher than those offered by Treasuries, there is a risk that the income generated may be lower than the rate of inflation. Inflation may diminish the purchasing power of a bond's interest and principal.

Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Your ability to sell a CD on the secondary market is subject to market conditions. If your CD has a step rate, the interest rate may be higher or lower than prevailing market rates. The initial rate on a step-rate CD is not the yield to maturity. If your CD has a call provision, which many step-rate CDs do, the decision to call the CD is at the issuer's sole discretion. Also, if the issuer calls the CD, you may obtain a less favorable interest rate upon reinvestment of your funds. Fidelity makes no judgment as to the creditworthiness of the issuing institution.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

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