As the financial landscape continues to evolve, especially in uncertain economic times, low-risk investments provide a solid foundation for investors seeking stability and consistent returns. Whether you are looking to protect your capital or earn a steady income, low-risk investments offer a way to achieve these goals without the stress and volatility of higher-risk assets.
In 2025, several low-risk investments stand out for their safety, stability, and potential for profitable returns. Here’s a guide to the 9 best low-risk investments you can explore this year, detailing why to invest, the risks involved, and real-world examples of each option.
1. High-Yield Savings Accounts
Why Invest:
High-yield savings accounts offer a secure way to earn a modest return on your cash, especially when compared to traditional savings accounts. These accounts are insured by the government up to $250,000 per depositor, ensuring the safety of your funds.
Feature:
Real-world example: Marcus by Goldman Sachs offers a high-yield savings account with competitive interest rates, perfect for those looking for a safe investment option. This is one of the most straightforward low-risk investments for short-term savings.
Risk:
While high-yield savings accounts are one of the safest low-risk investments, they are susceptible to inflation. The interest you earn may not keep up with rising inflation, which could reduce your money’s purchasing power over time. Therefore, understanding the basic 11 options for maximizing returns is crucial in today’s financial landscape.
2. Money Market Funds
Why Invest:
Money market funds pool various low-risk investments like Treasury bills, short-term bonds, and CDs. This diversification lowers individual risk, and these funds typically pay regular interest, often on a monthly basis. They are a liquid investment, meaning you can access your funds quickly without penalty.
Feature:
Real-world example: Vanguard Prime Money Market Fund offers a strong, diversified portfolio of low-risk investments. It provides liquidity and competitive yields, making it a solid choice for conservative investors.
Risk:
Though these funds are generally safe, the risk comes from interest rate changes. A decrease in interest rates can lower the returns on these funds. Additionally, some money market funds are not FDIC-insured, although they are typically managed to maintain a stable net asset value.
3. Short-Term Certificates of Deposit (CDs)
Why Invest:
Short-term CDs offer a guaranteed return on your investment, making them one of the safest low-risk investments available. With the backing of the FDIC, your principal is insured, and you know exactly how much you’ll earn by the end of the term.
Feature:
Real-world example: Ally Bank offers competitive short-term CD rates, ensuring fixed returns. Their no-penalty CD option provides flexibility, allowing you to access your funds early without incurring a penalty, making it one of the best low-risk investments for those seeking security with some flexibility.
Risk:
The primary risk with CDs is the penalty for early withdrawal. If you need to access your funds before the maturity date, you could lose some of the interest you’ve earned. Additionally, if interest rates increase after you’ve locked in your rate, you could miss out on higher returns. Achieving a 20% interest rate is a challenging yet attainable goal with the right strategies.
4. Cash Management Accounts
Why Invest:
Cash management accounts provide a way to earn competitive interest while maintaining liquidity. These accounts often come with no fees and can automatically transfer funds into high-yield money market funds. They are commonly offered by brokerages and can double as checking and savings accounts.
Feature:
Real-world example: SoFi Money promotions offers a cash management account that integrates with its investment platform, providing a seamless solution for managing both cash and investments while earning competitive interest rates. This type of account is a great addition to a low-risk investments portfolio.
Risk:
Although cash management accounts are low-risk investments, they are not insured by the FDIC. The interest rates are also variable, meaning the return could decrease in times of low interest rates.
5. Treasuries and TIPS
Why Invest:
U.S. Treasuries, including Treasury bills (T-bills), Treasury notes, and Treasury bonds, are backed by the full faith and credit of the U.S. government. Treasury Inflation-Protected Securities (TIPS) are designed to protect your investment against inflation by adjusting the principal value based on inflation rates.
Feature:
Real-world example: U.S. Treasury Bonds are widely available for purchase, with the option to invest through platforms like TreasuryDirect.gov, providing easy access to this secure, government-backed investment. These are classic low-risk investments for those seeking stability.
Risk:
The risk with Treasuries lies in the fluctuation of their market value if sold before maturity. Rising interest rates can reduce the market value of Treasury bonds, but if you hold them until maturity, you’ll receive the full principal. TIPS are excellent for hedging against inflation, but they are less effective if inflation rates are low.
6. Corporate Bonds
Why Invest:
Corporate bonds, especially those from large, stable companies, can provide a steady stream of income through interest payments. Bonds are generally safer than stocks, as bondholders are paid before stockholders in case of bankruptcy.
Feature:
Real-world example: Apple Inc. offers corporate bonds with attractive yields, backed by one of the most profitable and stable companies in the world. These bonds provide security and dependable income, making them ideal low-risk investments for those looking to minimize risk while still earning.
Risk:
The main risks with corporate bonds are interest rate risk and default risk. As interest rates rise, the value of existing bonds falls. Bonds from less reputable companies (junk bonds) carry a higher risk of default, meaning the company may fail to pay back its bondholders.
7. Dividend-Paying Stocks
Why Invest:
Dividend-paying stocks provide regular income in the form of dividends while still offering the potential for stock price appreciation. These stocks are generally more stable than growth stocks, making them a less risky option for long-term growth.
Feature:
Real-world example: Johnson & Johnson (JNJ) is known for its strong dividend-paying history, making it a great option for those looking for stable and reliable low-risk investments. Their consistent dividend payments make it a favorite among conservative investors.
Risk:
The biggest risk with dividend stocks is the company cutting or eliminating its dividend during tough financial times. This can negatively affect both the stock price and the income you were expecting.
8. Preferred Stocks
Why Invest:
Preferred stocks are a hybrid between bonds and common stocks. They pay a fixed dividend, and in the event of bankruptcy, they have a higher claim on company assets than common stockholders. For investors seeking a predictable income, preferred stocks can offer an attractive option.
Feature:
Real-world example: Bank of America Preferred Stock promotions provide fixed dividends and a stable income stream, making it a reliable choice for conservative investors who seek both income and moderate growth. This type of stock is a great low-risk investment for steady income.
Risk:
Preferred stocks are sensitive to changes in interest rates, as higher rates can make their fixed dividends less attractive. There’s also the risk that the company might suspend dividends during financial hardship, although they are often required to make up for missed payments later.
9. Money Market Accounts
Why Invest:
Similar to savings accounts, money market accounts offer a higher interest rate and allow easy access to your funds. These accounts are also FDIC-insured, making them a very safe place for your money.
Feature:
Real-world example: Discover Bank offers a high-yield money market account with FDIC insurance, providing safety and liquidity while earning a competitive interest rate. This is an ideal low-risk investment for short-term savings.
Risk:
The main risk with money market accounts is that their returns may not keep up with inflation. While the account itself is safe, the value of your funds may decrease in real terms over time if the interest earned doesn’t outpace inflation.
Final Thoughts
When seeking low-risk investments, it’s essential to balance safety with potential returns. Each of the options listed above offers a different mix of security and profitability, so understanding your personal risk tolerance and financial goals is crucial in choosing the right investment for you.
Low-risk investments are perfect for investors who prioritize stability, especially in times of economic uncertainty. However, it’s important to remember that the lower the risk, the lower the return, and inflation may eat into your purchasing power over time. For investors seeking higher returns, incorporating a mix of these options or diversifying into riskier assets may be beneficial. Start exploring these low-risk investment options today to build a stable and profitable portfolio that aligns with your financial objectives for 2025 and beyond.