There's no doubt about it: Interest rate returns have been poor for years. But if you're seeking safe investments with guaranteed returns, all hope is not lost.
There are still several ways you can invest for guaranteed returns to put your money to work while limiting risk or eliminating it completely. Your returns won't always be as high as sticking it out in the market. But for short-term or risk-averse investing, these ideas are some of your best options.
The Best Investments With Guaranteed Returns Right Now
Let’s be clear — generally, the safest investments produce the lowest yields. And while the investments are undoubtedly safe, there is an often-overlooked risk you should be aware of: inflation. A safe place to park your money might return 2% guaranteed, but if inflation reaches 4%, did you make anything in return? The answer is no.
However, you can still find meaningful, guaranteed investment returns if you know where to look.
1. Dividend Stocks
Though not technically fixed-income investments, dividend stocks can be considered safe and offer an almost guaranteed rate of return. With dividends, there is always the risk of loss of principal, because the price of an individual share could decline at any time. But at the same time, there is also the possibility of major growth, if the price of the stock rises.
Investor Junkie keeps track of the 50 companies from the S&P 500 that have increased their dividends to shareholders for 25 years straight. There are high dividend stocks available from iconic companies that have a long history of paying out and increasing dividends. Some of those stocks include:
- Coca-Cola (KO) currently pays an annual dividend yield of 3.53%
- Johnson & Johnson (JNJ) currently pays an annual dividend yield of 2.62%
- Procter & Gamble (PG) currently pays an annual dividend yield of 2.94%
- 3M (MMM) currently pays an annual dividend yield of 2.62%
2. Certificates of Deposit (CDs)
Another popular guaranteed return on investment idea is to invest in certificates of deposits, or CDs. These are an investment contract you have with a bank to pay you a guaranteed rate of return when you deposit money for a specified amount of time. CDs are among the safest investments out there since there is virtually no risk of loss of principal. Moreover, they come with FDIC insurance of up to $250,000 per depositor.
Terms for CDs can range anywhere from 90 days to 10 years. The more you deposit and the longer you leave it with the bank, the higher the guaranteed rate of return.
For example, a deposit of $1,000 today, held for one year, is going to yield around 1.3% ($13). But if you deposit $10,000 and agree to keep it for five years, it will yield approximately 2% ($200).
You can also find no-penalty CDs which let you withdraw your money anytime you want without paying penalties, so you get the best of both worlds. Alternatively, Jumbo CDs are an option for investors looking to put upwards of $100,000 to work.
3. Money Market Account
Money market accounts are another way to get a guaranteed rate of return while removing some of the restrictions you'd get with a CD. This is because money market accounts are basically enhanced savings accounts with some limited withdrawal and check-writing capabilities.
At the time of writing, some of the best money market accounts are paying around 1.5% APY to 2.1% APY. Banks like CIT Bank and Ally are two popular money market account providers, but pretty much any major bank and some credit unions offer them.
You sometimes need a $100 to $1,000 minimum deposit to open an account. And again, there are limitations for how often you can make withdrawals. However, money market accounts can be a great place to hold an emergency fund or some idle cash while still enjoying a guaranteed return investment.
4. U.S. Treasury Securities
U.S. Treasury Securities are a way for you to buy America’s debt. You can purchase U.S. Treasury securities through the Treasury Department's bond portal, Treasury Direct. In denominations as small as $100, the government will sell you Treasury bills (maturities of 52 weeks or fewer), Treasury notes (maturities of two, three, five, seven and 10 years) and/or Treasury bonds (30-year maturities).
Since it is the government you are buying from, the interest payments on whatever form of security you purchased are guaranteed. However, keep in mind that the principal, the money you invest, could decline if interest rates rise. For that reason, if you're looking for 100% safety, you should stick with Treasury bills and short-term Treasury notes.
5. Treasury Inflation-Protected Securities (TIPS)
TIPS are another investment option offered by the U.S. Treasury. TIPS pay interest like Treasury bonds, notes, and bills — but TIPS actually account for inflation! So at first glance, even though the interest rates for TIPS appear to be lower (0.8% for a 30-year), you need to remember that the real return is adjusted for inflation, which moves TIPS closer to the yields on other government securities of comparable maturities.
TIPS can also be purchased and held through Treasury Direct.
There are caveats with TIPS that you should be aware of:
- The principal adjustment for inflation isn't paid until the securities mature
- The principal adjustment for inflation is fully taxable, which reduces the protection they provide
- Increases in principal are taxable for the year in which they occur, even if your TIPS hasn't matured — meaning you could pay tax on income you haven't received
If the Bureau of Labor issues an inflation rate of 1.5%, but the real rate of inflation is more like 3%, you'll actually lose money on your investment in real terms. So when you consider TIPS, remember it is the government’s perspective of inflation that’s being accounted for — not the inflation you encounter when you’re at the grocery store or buying a new home.
6. High-Yield Savings Accounts
Another classic way to get a guaranteed return on investment is to park your money in a high-yield savings account. And while this might not always outpace inflation, recently, mobile banks have begun offering higher interest rates to entice customers.
Some of the best high-yield savings accounts on the market right now include:
Options like Aspiration and Varo are currently paying up to 5% APY if you meet certain terms. The downside is that many mobile banks limit how much money earns the top interest rate. But you can always spread your money across a few high-yield savings accounts to maximize the interest you're earning.
7. Municipal Bonds
Municipal bonds are just like U.S. Treasury bonds, except you are buying the debt at a state or city level, not at a federal level. “Munis,” just like Treasury bonds, provide a guaranteed rate of return, AND the income you earn from munis is tax-free. But there are two things to keep in mind:
- Munis are long-term investments, generally 20-plus years
- Interest rates are currently at historic lows
That's a toxic mix. Long-term bonds run inverse to interest rates. This means if interest rates rise, bond prices go down. So if you invest in a 20-year municipal bond issued by your state at 2% today, and two years from now the going rate for a similar bond is 4%, the market value of your bond will tank.
There is a workaround, however. By investing in short-term municipal bond funds, you can collect tax-free income without the risk of losing your principal to market reactions from interest rate swings.
One such fund is the Vanguard Short-Term Tax-Exempt Fund Investor Shares (VWSTX). The fund invests in high-quality, short-term municipal securities with an average duration of one to two years and has a 10-year average return of 1.64%. If your combined federal and state marginal tax rate is at 40%, the equivalent return on a taxable investment would be around 2.73%.
I hesitated to include annuities in a list of investments with guaranteed returns because they incorporate a fairly long list of both positive and negative attributes.
- Annuities often pay returns considerably higher than other fixed-income investments
- Annuities grow on a tax-deferred basis, even though they are not held in a tax-sheltered retirement plan
- Annuity returns can be guaranteed by the insurance company
- Annuities provide you income for life… that will continue to be paid to you even if the principal value has been depleted
- An annuity may pay a 6% rate of return but charge you 2.5% in fees
- No liquidity — by investing in an annuity, you are investing in future income and will not collect back that original investment
Ultimately, annuities are better suited for retirees strictly seeking fixed income because once you invest in an annuity, the principle that you invest will never be available to you — BUT you will have guaranteed income for life. So think about where you are in life and whether or not this is an option to explore.
9. Paying Off Debt
Hands down, this is probably the only true risk-free chance you have at earning double-digit returns on your investments. And it will be virtually a guaranteed rate of return at that.
Let's say that you owe $10,000 in credit card debt, with an annual interest rate of 14%. By paying off the card, you are in effect getting a 14% annual return on your investment, as a result of the interest that you no longer have to pay.
What's more, if you have liquid cash invested at an average of, say, 2% but you have credit card debt requiring double-digit interest, you are losing money by not paying off that debt. Paying off debt is a guaranteed win.
How to Choose The Right Guaranteed Investments
Now that you know some of the most popular investments with guaranteed returns, here are a few tips for how you can choose the right investment.
- Consider Your Risk Tolerance: Guaranteed investments are all generally low or zero-risk, which is the main purpose of these investments. But some ideas have slightly more risk than others for the potential of higher returns, like dividend stocks. This is why it's important to consider your overall risk tolerance and how it relates to picking various guaranteed investments.
- Consider Your Investing Timeframe: Are you investing for the short-term or long-term? If it's the former, flexibility is crucial so you can withdraw your funds when you need to. This is also when options like a high-yield savings account, no-penalty CDs, and money market accounts make sense. In contrast, you can take a bit more risk and limit flexibility slightly if you're investing for 5 to 10+ years down the line.
- Consider Asset Allocation: How do guaranteed return investments fit into your overall asset allocation? Retired investors might be comfortable with a portfolio that's completely made up of fixed-income investments. But younger individuals may want to mix in growth stocks, ETFs, and even other asset classes like real estate to create more diversity.
Generally, going for a guaranteed rate of return means you're sacrificing performance for security. And while this is still the case these days, you don't have to settle for insignificant returns if you want security.
It's more than possible to put your money to work to stave off the impacts of inflation without risking your capital. And if you use several ideas in this list, you can build a robust, sturdy portfolio that serves you well for years to come.