When it comes to investing, safety is usually measured by the risk of losing your principal. So a ‘safe’ investment generally refers to assets that offer low volatility and protection of your original investment. While no investment is entirely risk-free, the following options are traditionally considered some of the safest places to put your money:
Bonds are a relatively safe investment option
Bonds, particularly government and high-quality corporate bonds, are among the safest investments as they provide regular income and are less volatile than stocks. Government bonds issued by countries like the US, UK, Germany and others with strong credit ratings have virtually no risk of default. High-grade corporate bonds from financially sound companies also offer very low credit risk.
Savings accounts protect your principal
Savings accounts with banks or credit unions provide safety by protecting your initial deposit through FDIC and NCUA insurance. Rates on savings accounts are very low, but your principal is secure up to $250,000 per depositor, per insured bank. Just don’t expect your money to grow much.
Money market accounts offer modest returns with little risk
Money market accounts, offered by banks and credit unions, provide higher returns than regular savings accounts while still protecting your principal. They invest in ultra short-term debt securities to generate a modest yield. Money market funds run by mutual fund companies function similarly.
Certificates of deposit (CDs) guarantee your money
CDs are time deposits with guaranteed interest rates, usually for terms of months or years. Because they are FDIC insured, even if the bank fails, you’ll get your principal and interest. The trade-off is your money is locked up until maturity.
Treasury securities are backed by the U.S. government
Directly owning Treasuries, like T-bills and T-notes, is about as safe as it gets for U.S. investors. They are backed by the full faith and credit of the federal government and come with essentially zero risk of default. The drawback is they offer relatively low returns.
In summary, the safest investment options include bonds, savings accounts, money market accounts, CDs and Treasury securities. While their returns are modest, they provide stability and prevention of principal loss.