If you have $100,000 to invest for income, you can earn anywhere from a fraction of a percentage point to as much as nearly 10% on your money. Some interest-earning investments are guaranteed safe by the U.S. government, others are subject to market fluctuations. Some have tax advantages, while others may limit the amount you can buy. If you are unsure about what to do, you can find a financial advisor to help you get the most interest income from your $100,000.
Investing Basics for Interest
Interest-earning investments represent just one way you can invest $100,000. You can also look into stocks, including dividend stocks, as well as real estate, commodities and even collectibles. Interest-earning investments are generally safer than other investments, such as stocks, for which the opportunity of return is based on price appreciation. For this reason, interest-earning investments are a good fit for investors with limited risk tolerance, especially when investing over a shorter time frame.
If you are more risk-tolerant and investing for a longer period, such as a retirement date that is a decade or more away, you may gain higher returns by investing in stocks. Over longer time frames, inflation can also be a significant concern. Stocks may perform better against inflation than many interest-earning investments.
Compounding is an important concept in interest investing. Investments that earn interest on the interest already earned can increase the value of your portfolio surprisingly quickly. Diversification is another element to consider. Dividing investments between different asset classes, such stocks and bonds, as well as among different securities, can help manage risk and improve return.
Where to Invest $100,000 for Interest
An investor with $100,000 in search of interest has a wide range of options. Generally speaking, the higher the return, the greater the risk. Investments also differ in terms of liquidity, or how easily and quickly an investor can turn the investment into cash. Here are eight common choices:
Savings account. A savings account at a bank or credit union offers high liquidity and safety. Bank savings accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC). The National Credit Union Administration (NCUA) protects credit union savings accounts from losses. Savings accounts pay from 0.01% to 1% annually. You can check for the best-paying savings accounts using SmartAsset’s online savings account comparison tool.
Money market account. These bank and credit union accounts may pay more interest than regular savings accounts and also offer greater convenience, such as the ability to write checks, while also having government-backed protection. Rates currently range from about 0.6% to 1%. You can find the best rates using SmartAsset’s online money market account comparison tool.
Money market funds. These mutual funds invest in short-term debt instruments issued by governments, corporations and financial institutions. Money market funds are currently paying seven-day yields of about 0.50%. You can buy money market funds at many banks but they are not insured against loss, although they are considered safe and conservative investments.
Certificates of deposit. Banks and credit unions offer certificates of deposit (CDs) to investors who are willing to commit their funds for a certain period time in return for a higher interest. CDs typically have maturity dates between 28 days and 10 years. If you cash in the CD early, you may pay a penalty, so CDs are best for money you don’t think you’ll need before the maturity date. CDs are currently paying rates of from 0.8% to 2.75% depending on the maturity. A jumbo CD that pays a somewhat higher interest rate is available for savers ready to deposit at least $100,000.
Treasury securities. Bonds, notes and bills issued by the U.S. government are ultra-safe and every six months pay interest rates determined by the market. They come in various maturities, allowing investors to purchase bonds that fit their time frames. Mutual funds that invest strictly in government securities provide greater flexibility, liquidity and diversity.
Series I savings bonds. Sometimes called iBonds, these U.S. Treasury securities are currently paying 9.62% annually, one of the highest yields available. Their government backing also makes them very safe. Investors can only buy a maximum of $10,000 of Series I bonds a year, plus another $5,000 worth if using a tax refund. But Series I can be a safe, high-interest part of a portfolio of $100,000 in interest-paying investments.
Corporate bonds. Large companies borrow money by selling debt obligations to investors. While less safe than Treasury securities, they also tend to pay higher interest. Corporate bond interest rates vary widely depending on the stability of the issuer. Unlike other interest-paying securities, corporate bonds may vary in price, so the interest rate is only one concern. Corporate bond funds offer a convenient way to invest in a diversified basket of bonds from many different issuers.
Municipal bonds. These debt instruments are issued by local governments to raise money to build roads and fund other improvements. While not as safe as Treasury securities, municipal bonds are free from federal income taxes and, often, state and local income taxes as well. Municipal bond funds let investors easily buy and sell diversified baskets of municipal bonds.
An investor with $100,000 and a desire for interest income can choose from a variety of options, ranging from ordinary savings accounts to government-issued Series savings bonds. The rate of interest, safety and liquidity offered by these different investments differ widely.
Investing Tips for Beginners
A financial advisor can help you put a financial plan into action for your investments. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Before you start investing for interest, consider paying off any high-interest debt you owe. Also look into creating an emergency fund to allow you to cover unexpected expenses without dipping into your investment portfolio.
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