A Pennypinchers Guide to Make Extra Cash

Graphic Designed by: Dennis Mach

BRB Bottomline: Investing by definition is expending money with the expectation of achieving a future profit or return; however to become a great investor, it is essential to be willing to take calculated risks. But, as you near retirement, or if you’re saving for your high school senior’s college fund, your appetite for risk drops precipitously. Fortunately, there are investing techniques and options available to the every-day investor that can ensure a return on investment with little to no risk. With the proper allocation of funds, and a bit of financial literacy, anyone can equip themselves with the knowledge to earn a profit.

This article is a curated list that aims to inform readers on how to maximize their hard-earned money—highlighting the wide array of investment opportunities available and providing detailed summaries of what option is best. Here are a few of the best low-risk investment options!

High Interests Savings Account

A risk-free way to earn some interest on your money, a high yield savings account might be your answer. With these accounts, you’ll earn a higher-than-normal amount of interest just for keeping your money deposited. Other than opening your account and depositing your money, this strategy requires almost no effort on your part either.

The best high yield savings accounts offer competitive interest rates without charging any fees. When choosing an account, you’ll also want to look for a bank with a good reputation for providing quality customer service, and easy online account management

Certificate of Deposits

With a Certificate of Deposit (CD), you have the ability to deposit your money for a specific length of time in exchange for a guaranteed return on your money.

As long as you receive a certificate of deposit with an FDIC insured financial institution, you are guaranteed to get your principal back as long as your total deposits at that specific financial institution are less than $250,000. The government is guaranteeing you cannot have a loss, and the financial institution will give you some interest on top of that.

How much interest you earn is dependent on the length of the CD term and the current interest rates when you purchase your CD. Interest rates are fairly low at the moment, but you can usually get more interest if you get a certificate of deposit for a period of at least 1-2 years. The average interest rate for a CD depends on the fixed time period option you select as it has a predisposed fixed rate. A 1 year CD can range anywhere from 0.80& to 0.96%. Generally, the interest rates tend to increase with deposits in longer CD contracts.

Paying Dividends of Stocks

A safe method to receive a bit more return out of your stock investments is to target stocks or mutual funds that have nice dividend payouts. Dividends are payments made by a company to its shareholders. When a company earns more money than it spends, the extra money can either be re-invested into the company or it can be given to the people who own stock in the company as a dividend. If two stocks perform exactly the same over a given period of time, but one has no dividend and the other pays out 2% per year in dividends, then the latter stock would be a better choice.

Of course, picking individual stocks isn’t easy (utilize trading tools like Scottrade or ETRADE) and comes with the risk that the company may falter. So a safer bet would be to invest money into a dividend stock mutual fund, and with this type of mutual fund, the fund company targets stocks that pay nice dividends and does all of the work for you. You also get diversification so that one or two stocks can’t tank your entire investment.

Ultimately, if you are looking to get started, M1 Finance has more than 6,000 stocks and ETFs you can trade for free, many of them dividend paying.  Other good low-cost options include Ally Invest, and the previously mentioned Scottrade and ETRADE.

Credit Card Rewards

The idea behind credit card rewards is that by picking up a cash back credit card, you earn points that translate into real money.

For example, let’s say you picked up a Chase Sapphire Preferred® card and used it to earn the signup bonus. Once you spent $4,000 on your card in 90 days, you would earn 50,000 points which is worth $500 in gift cards or in cash back. In essence, if you spent that $4,000 on expenses you normally pay like groceries, daycare, or utilities, and paid your card off right away before the due date, this is the closest thing to free money you’ll ever receive.

So long as you are paying off your full monthly balance and avoiding penalty fees, credit card rewards can be free bonuses without any additional risk. Just make sure you’re using your credit card

Treasury Inflation Protected Securities (TIPS)

One of the lowest risk investments is known as a Treasury Inflation Protection Securitie, or TIPS. These bonds come with two methods of growth. The first is a fixed interest rate that doesn’t change for the length of the bond. The second is built-in inflation protection that is guaranteed by the government. Whatever rate inflation grows during the time you hold the TIPS, your investment’s value will rise with that inflation rate.

For example, you might invest in a TIPS today that only comes with a 0.35% interest rate. That’s less than certificate of deposit rates and even basic online savings accounts. That isn’t very enticing until you realize that, if inflation grows a 2% per year for the length of the bond, then your investment value will grow with that inflation and give you a much higher return on your investment.

It is beneficial to know that TIPS can be purchased individually or you can invest in a mutual fund that, in turn, invests in a basket of TIPS. The latter option makes managing your investments easier while the former gives you the ability to pick and choose with specific TIPS you want.

Take Home Points

All in all, it’s important to reduce your risk as much as possible when considering the option to invest. No one wants to aimlessly lose capital, but with these low risks investments, you’re hitting two birds with one stone as there is little to no risk and an almost guaranteed return on investments. Thus, I urge you to consider these modes of investing, but most importantly remember to read the fine print and educate yourself along the way. And if you’re ever in doubt over an investment product or service, speak with a qualified financial advisor and ask as many questions as you can.


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