A guaranteed interest account offers a low-risk way to protect your money. Guaranteed interest accounts offer consistent, reliable returns. They can be used to save for the short term or as a supplement to other investments.
It can be difficult to choose the right type of account for you, with so many choices available.
This article provides an overview of different types of guaranteed-interest accounts, their benefits, and tips on choosing the best option.
What does Guaranteed Return mean?
When an investment has a “guaranteed rate of return”, the investor receives a certain interest rate. The institution that offers the guarantee is usually a bank or credit union.8 Low-Risk Investments with High Returns
A guaranteed rate does not mean the investment is risk-free or that it will yield a higher return than other options. Certain guaranteed returns, like CDs and bonds may be considered low risk, but still have some risks.
Investors are given a sense that their investment is secure and predictable.
Are you tired of the ups anddowns in the stock market? Accounts with guaranteed interest offer a steady rate of return.
The return on investment can be lower even with a guarantee. Annuities and other investments that offer a guaranteed return may be accompanied by high fees or expenses. This can reduce the returns.
How does a Guaranteed Interest Account work?
A Guaranteed Investment Account (GIA), also known as a Savings or Investment Account, offers a fixed interest rate. The rate is guaranteed to remain constant for a certain period of time, typically one year or more. Examples are Certificates Of Deposit (CDs), High-Interest Savings accounts, etc.
Many banks and credit unions provide guaranteed interest accounts.
Low Rates of Return
GIA rates of interest are usually lower than those offered by other investment options such as mutual funds, stocks or exchange-traded fund (ETFs) because the return is guaranteed. They are also a safe option.
You may be penalized for withdrawing early.
If you withdraw your investment from certain guaranteed interest accounts like CDs before the maturity date, you may be charged a penalty. Penalties will vary depending on which institution you are using and what GIA product you have.
GIA Annuity accounts
Some GIAs are annuities and have a set maturity date. The money is locked up for a specific number of years. After that, you can withdraw the principal and interest.
Before opening a GIA, it’s important that you compare the terms and interest rates of the different GIAs. Also, be sure to consider the penalties associated with early withdrawal.
Take a look at 8 different investments with a guaranteed return rate.
What are the best investments with guaranteed returns?
1. Bank-Brokered Certificates
Bank-brokered or brokered CDs are CDs that banks offer with a rate of return guaranteed for a certain period. These CDs are usually sold by a financial advisor or broker rather than the bank directly.
The principal investment is insured by the FDIC for up to $250,000.
The interest rate of a CD purchased through a bank is also guaranteed throughout the CD’s term. This means that, even if rates drop, your CD rate will remain the same. Anyone who is concerned about the market and wants to guarantee a steady return can feel secure with a bank-brokered CD.
It’s important to know that most bank-brokered CDs have penalties for early withdrawal. This means you may lose all or part of your interest if the account term is over.
2. High Yield Savings Accounts
Savings accounts with high yields offer higher rates of interest than standard savings accounts. The principal investment in these accounts is FDIC-insured, making them a low risk investment. The best high-interest saving accounts are offered by online-only banks like Discover and Ally.
There is no lock-in period, or term fixed as there would be with a CD.
Liquidity is one of the biggest benefits of a high yield savings account. You can access your money easily because it is not locked in. Some institutions require a certain minimum balance. If it is not met, the account rate can be reduced or closed.
3. Fixed Annuities
Fixed Annuities offer a guaranteed return rate for a specified period. An annuity is considered a low-risk investment because it’s typically backed up by the full faith of the insurer that issued the annuity. The interest rate of a fixed-term annuity can be guaranteed throughout the term. This means that, even if rates drop, your rate will remain the same.
It can be a good option for investors who are concerned about the market and want to make sure they get a consistent return on their investments.
You can invest in fixed annuities by making a lump-sum payment or a series of payments. In return, you will receive a stream of guaranteed income for a specified period of time, typically after retirement. The income can be guaranteed for life or a set number of years.
Annuities can be used to save for the future and ensure a steady retirement income.
Fixed annuities can have restrictions, such as penalties for early withdrawal, and high fees that can reduce the return.
4. Fixed-Index Annuities
Fixed Indexed Annuities (FIAs), is a type annuity offered by insurance companies. It offers a guaranteed return rate for a specified period with the possibility of additional returns based upon the performance of an index of the stock market such as S&P500.
The investment is considered low-risk because the principal is usually guaranteed by the insurer, as is the interest rate. This means that, even if stock indexes perform poorly, investors will not lose their principal.
These annuities offer the same tax benefits as traditional annuities, and they can also be used to save for retirement.
The interest rate that is credited to your contract may not change over time. It depends on the performance of the index. Fixed-index annuities are expensive, and they can have high fees.
5. Deferred Annuities
Insurance companies offer deferred annuities as another type of annuity. Investors can contribute to an annuity for a period of time, usually many years, and then start receiving guaranteed income payments. Income payments are usually received by annuitants after they reach a certain age, like retirement age. They are guaranteed to last for a specified number of years, or even the rest of their lives.
If you are looking for a retirement income that is guaranteed and has a high rate of return, deferred annuities could be the right choice for you. However, be aware of fees and penalties.
6. Treasury Inflation Protected Securities
Treasury Inflation Protected Securities (TIPS), a type of government bonds offered by the U.S. Department of Treasury, are an example of this. These are some of the lowest-risk investments that offer a guaranteed return and protection against inflation.
TIPS adjust the principal and interest to inflation so that the bond’s value increases in line with inflation. This protects the purchasing power of the investor. TIPS have fixed interest rates that are paid every six-months. The bond can mature in five, ten or thirty years.
TIPS are a low risk investment because they are issued by and backed up by the U.S. Government.
These investments can provide a guarantee of return, protection from inflation and are a great addition to any portfolio.
The TIPS interest rate is lower than that of other bonds and the principal amount may be taxed.
7. Treasury Bonds
Treasury bonds are also called T-bonds and are a form of debt security issued the U.S. Department of Treasury. As they are issued and backed by the U.S. Government, Treasury bonds are considered a low risk investment.
Bondholders receive interest payments every six months. When the bond matures, the face value is returned to bondholders.
Treasury bonds are a great option for those who want a guaranteed return and have a low risk profile. They provide a stable income and are a great addition to any portfolio.
The interest on Treasury Bonds is also exempt from local and state income tax.
8. Whole Life Insurance
Whole Life Insurance is one type of Permanent Life Insurance. It provides a death benefit guaranteed to the beneficiaries of the policyholder in the event of his or her death.
Cash value is guaranteed to grow at a certain rate. The policyholder can borrow from the cash value and accumulate savings.
Whole life insurance can be a good option for people who are looking to get a return on investment or want to protect their family financially in the event that they die.
Whole life policies are more expensive than term policies and their cash value is not guaranteed to cover death benefits.
Can Guaranteed Return Investments Lose Value?
Savings accounts, CDs and annuities are considered safe investments because they offer a principal guarantee.
These investments are subject to a risk known as inflation risk. If the returns do not keep pace with inflation, you may lose the purchasing power of your investment.
Inflation has reached levels not seen for decades in 2022. This is why long-term investments are almost always made in the stock markets, whether they be ETFs or mutual funds.
What to do with Guaranteed Investments
Guaranteed interest investments are a good way to invest money in the short- to medium-term. These investments have been designed to protect the principal and offer financial stability.
It’s important, with so many choices, to compare products, research and choose an investment that suits your risk tolerance and goals.