High-Yield Investment Options – Give Your Portfolio a Boost

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February 19, 2022

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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.

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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.

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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Aaron Crowe is a freelance journalist who specializes in personal finance writing and editing. He has worked at newspapers, where he won a Pulitzer Prize, and has written for numerous online publications. These include AOL, US News & World Report, WiseBread, Bankrate, AARP, and many websites focusing on housing, credit and insurance. He lives in California with his wife and daughter.

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