Types of Investments

As you become more involved in saving your money, you may look for other places to put it, which are called investments. There are plenty of investment options available to make your money work as hard as you do. When comparing what you might earn on an investment, such as the interest rate it pays, remember that the lower the potential earning, the lower the risk of loss. A higher rate of return can mean a higher risk of loss.

Following is a list of some of the most common savings and investment options available today. The investment world is constantly changing, so there’s always plenty to learn when it comes to saving and investing. As you gain more experience and knowledge, it can pay to investigate these investment opportunities. A good rule of thumb is this: Avoid buying individual stocks and bonds unless you can afford to lose the money.

• Money market accounts. A money market account offers a higher interest rate than other checking or savings accounts, but usually requires larger deposits. Some accounts have restrictions on the number of transactions you can have in a month.

Certificates of Deposit (CDs). With a certificate of deposit, you agree to “lock up” a certain amount of money for a set period of time. This time period could be six months, one year, two years, and so on. At the end of that time, you get back the dollar amount of the CD plus interest. If you take the money out before the deadline, you’ll pay a penalty, which often means losing a large chunk of the interest. Savings Bonds. You can buy savings bonds for a small amount of money—the minimum investment is $25 when buying them from a financial institution. The advantage is that they are lower risk than most investments since both principal and interest are guaranteed by the U.S. government, and lost, stolen, or destroyed bonds can be replaced. The interest earned is tax-deferred until the bonds are cashed in.

You can buy savings bonds through most local banks. Banks accept applications and payment for bonds and forward them to a Federal Reserve Bank, where the bonds are issued and mailed to the owner. Bonds are delivered within 15 business days, and the bond’s issue date reflects the date of application so no interest is lost.

• Individual stocks and bonds. Buying individual stocks and bonds can be riskier than other investment options. Unless you are confident that you have solid investment experience, can rely on a competent financial adviser, and have several varieties of assets, stocks and bonds make for risky investing. On the other hand, some stock investments can pay significant returns.


• Mutual funds. With a mutual fund, your money is pooled with the money of many people. The person managing the fund invests in many stocks, bonds, real estate, and other assets. So, even if some of your investments don’t do well, other investments may prosper. The idea behind a mutual fund is much like the old saying, “Don’t put all your eggs in one basket.” Some mutual funds are riskier than others. It will be up to you to talk to a professional financial advisor and learn how much risk you can afford to take.


• Individual Development Accounts. When you have established a nice savings cushion, you may wonder what else you can do with your money. Banks in some states offer special Individual Development Accounts (IDAs). Low-income families can put even more money than usual into these accounts and still receive government assistance. IDAs help people save for certain purposes, such as:
• Buying a home
• Buying a business
• Paying for trade school or college

Sometimes private organizations or the government sponsor these accounts. When they do, they may “match” your savings. For example, if you put a $1 a day into your savings, the organization may put $1 of its own money in as well. To participate in an IDA program you may be asked to reach certain goals and participate in money management classes.