Are you looking for an alternative to CD investments? With the way interest rates are plummeting now, it’s now harder ever to see good returns on traditional certificates of deposit. We’ve put together a list of CD alternatives you can invest in instead with low risk, stable rates, and reasonable terms.
For years CDs have been the poster boy for “safe investing”.
But the time for favorable interest rates around 8% is long past — back in the ’80s or ’90s, perhaps. A quick look at interest rates now will show you how the “best” rates are hovering just under the 1% APY mark.
While CDs continually make it to lists of best passive income ideas, it’s kind of an oxymoron at this point. If it can’t beat inflation then it isn’t an investment.
So what was it precisely about CDs that made it so appealing to a lot of people?
- Certificates of deposit provide steady returns for low risk.
- CDs are very low-maintenance — which is excellent for those with idle money lying around.
- CDs have predictable returns — you know when you’re getting your money back and how much you’re getting.
So what are the best alternatives to CD investments that meet these requirements? We’re going to discuss a few with you today.
What are the best alternatives to CD investments?
1. Dividend Stocks
Another excellent alternative to CD investments is dividend stocks. These typically offer higher returns than CDs over the long term and provide a degree of safety that normal stocks can’t.
High-dividend stocks are usually issued by well-established companies as a way to assure producing steadier, more consistent gains to shareholders.
Between 1972 and 2013, dividend stocks posted an average annual return of just above 10%. That makes them a good long term bet. Plus, since they are stocks you can withdraw anytime.
While we’re on stocks, ETFs (or exchange-traded funds) can be a great modern option for steady growth.
ETFs are passively managed, diversified portfolios of stocks that try to reflect the market performance of a certain sector. There’s ETFs for commodities, financial technology, gaming, and even the Brazilian economy. What makes ETFs attractive is that:
- Low cost for entry.
- They’re simple to buy, sell, and own.
- ETFs seldom incur yearly capital gains taxes as mutual funds can; you’ll only pay taxes when you sell your shares in the ETF for a profit.
- High diversification.
According to Bloomberg, ETFs trade about 20 trillion dollars worth of shares a year. You can buy into ETFs through any major stockbroker.
3. Real estate-related investments
Real estate is a great passive wealth-building instrument if you have it. But until now the entry bar has been set quite high for people who don’t have a couple hundred thousand dollars lying around.
REITs pool funds from many investors and use the capital to own, operate, or finance various real estate projects. Publicly traded like stocks, REITs also payout 90% of their taxable income as dividends.
Real estate crowdfunding is another investment option gaining popularity. In this type, investors use an online platform to buy property together.. The entry barrier has been dramatically lowered, allowing you to start investing for as low as $500.
Returns from crowdfunding have been quite encouraging, outperforming even the stock market since 2000. Fundrise, one of the more popular real estate crowdfunding services today, for example, had returns of 9.47% in 2019.
4. Corporate Bonds
Corporate bonds are loans issued to corporations to raise capital. They are a secure way to make high-interest returns on a set term. Because your borrower is a business, they are more regulated than an individual borrower.
The Metropolitan West High Yield Bond Fund (MWHYX), for example, has a 1-year total return of 7.92%.
For non-accredited investors, you need to invest in corporate bonds via a broker. Some major online brokers include Fidelity Investments, E*TRADE Financial, Charles Schwab, and Vanguard.
The above options are great ways to diversify if you want some reasonably safe alternatives to a CD. But there’s one more option today that may even replace CDs in the next decade. Experts estimate that its market could reach $150 billion or higher by 2025.
P2P lending: the best alternative to CD investment?
Peer-to-peer lending was born out of a need for better interest rates from banks. P2P lenders are online platforms replacing the bank in the lending process. They distribute loans and interest directly between the investors and the borrowers.
Lenders get excellent returns on investment by funding these loans. While P2P lending might not be FDIC-insured, they enjoy a reasonable degree of security by allowing investors to invest in variable risk loans and even secured loans. Returns average 5% to 9%.
Investing with us gives you:
- 100% secured interest for 6–7% APR.
- Flexible rates and term lengths.
- When not on loan, your funds earn 4% APY.
- You can withdraw anytime without additional fees.
- Easy transition into cryptocurrency.
Head on over our website and find out how P2P lending can work for you today.