While very few investments are completely risk-free, there are several relatively safe places

While very few investments are completely risk-free, there are several relatively safe places to invest cash. When deciding upon a safe investment plan, the investor should strive to create pockets of investments that offer FDIC insurance, yield the highest possible rate, provide short- and long-term funding, and are liquid. 

1 Money Market Funds

Money market funds generally represent a lower risk option than other types of mutual funds. As these funds are liquid and offer check-writing options, putting cash into a money market account gives the investor the ability to easily access the money in case of an emergency. Money market funds pay dividends that reflect short-term interest rates. While money market funds are considered a safe investment, the investor should be aware that they are not federally insured, which means the money will not be reimbursed in the event that the financial institution is unable to pay due to circumstances such as a bankruptcy.

2 Certificates of Deposit (CDs)

Certificates of Deposit are accounts in which money is placed for a predetermined amount of time in order to yield a guaranteed interest rate. CDs, which are issued by banks and credit unions, offer the investor the flexibility of a short- or long-term commitment (usually from one month to five years), are low risk, and are federally insured up to $100,000. The amount of interest offered by a given CD corresponds to the length of time the money remains in the account; the longer the term, the higher the interest rate. The primary disadvantage of this type of investment is that early withdrawal of funds will result in penalties. The Internet is a valuable tool for tracking the interest rates of the innumerable CDs offered throughout the country. Sites that offer up-to-date interest rates include http://cdrates.bankaholic.com, www.interest.com and www.bankrate.com.

3 U.S. Treasury Securities: Bills, Notes, and Bonds

While bills, notes, and bonds issued by the United States government are considered one of the safest investments, they often have a minimum investment requirement of $1,000. The primary difference between bills, notes and bonds is their maturity terms; treasury bills (T-bills) have a maturity of less than a year, treasury notes are issued in 2- to 10 year-terms, and treasury bonds are typically issued in maturities of 30 years. Bills, notes, and bonds can be purchased at a federal government auction or brokerage house. While payment schedules may vary depending upon the individual security, the holder of bills, notes, or bonds can generally expect to receive an interest payment every six months.

4 Insured Municipal Bonds

States, counties, and cities issue these bonds in order to raise money for projects intended for public use, such as schools, highways, and housing projects. Approximately half of all bonds are insured, and these insured bonds maintain the distinction of having a AAA rating, which is the highest credit rating possible. While municipal bonds are offered in terms varying from several months to several decades, they typically pay interest on a semi-annual basis; this interest is always exempt from federal taxes and is sometimes exempt from state taxes.

5 Employer 401(k) or 403(b) Plans

A 401(k) plan offers the employees of a company the opportunity to have a percentage of each paycheck automatically contributed to the plan. Many companies offer plans in which they match each employee’s investment up to a certain percentage. In recent years, companies have increasingly provided managed accounts; these accounts are handled by a third-party investment firm that is responsible for making decisions regarding asset allocation and the types of funds that are offered. Because 401(k) accounts are directly tied to the company for which one works, the employee must transfer the money when leaving the company. While it is possible to borrow against the 401(k) plan, most financial experts advise against this practice. While individuals who are not employed by a corporation, such as university, government, and not-for-profit employees, do not have the option to contribute to 401(k) accounts, they are provided a similar option with the 403(b) retirement plan. Overall, this plan has characteristics and benefits similar to that of a 401(k) plan. 

6 Business Investment

Reinvesting money into your own business in an attempt to increase profits can be considered a safe investment, provided the company is stable. Funneling company profits into educational or training opportunities that will ultimately further the business is one investment option. Using cash to outsource tasks that have typically been completed in-house, such as Web site maintenance, bookkeeping and administrative work, has the advantage of helping to increase sales while enabling employees to spend more time dealing directly with clients. For additional tips visit Small Business Trends at www.smallbiztrends.com.

7 Online Savings Accounts

Due to the Internet, investors are no longer limited to opening accounts at financial institutions that are in their own geographic area. Like many other safe investment options, online savings accounts offer investors easy access to money while giving them a tremendous amount of flexibility. These online accounts are generally FDIC insured and can connect to the investor’s other accounts in a bank or credit union. Online savings accounts typically offer slightly lower interest rates than short-term CDs. Consistently high-rated online savings accounts include those offered at www.hsbcdirect.com and home.ingdirect.com.