Best investments for beginners: Effective ways to grow your money

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In a nutshell

Getting started with investing can feel a little https://saloncandnailspa.com/ overwhelming if you’ve never invested before. This guide can put you on the right path, though, outlining 10 of the best ways for a newbie to invest money ranging from high-yield savings accounts and workplace retirement plans to mutual funds and exchange-traded funds (ETFs).

• High-yield savings accounts, money market accounts and certificates of deposit have recently started offering yields above 5% annually.
• Bonds may provide slightly higher yields than savings accounts.
• Stocks are the most risky investments, but they can provide higher returns over the long term.

5 ways to invest money for beginners

1. High-yield savings accounts

A high-yield savings account enables you to earn far more interest than you could with a traditional savings account. As a result, it’s an ideal component of an investment strategy for beginners.

As of February 2024, some high-yield savings accounts were paying an APY (annual percentage yield) above 5%. By comparison, the average interest rate for all savings accounts stood at an unimpressive 0.47% in January 2024, according to the Federal Deposit Insurance Corp. (FDIC).

2. Money market accounts

A money market account – another type of savings account – is another way to potentially earn substantial interest.

In March 2024, the average interest rate for a money market account was 0.66%, according to the FDIC. That’s well above the average rate for traditional savings accounts. As of March 2024, some money market accounts were offering an APY above 5%.

There’s a trade-off for the higher interest you can earn on a money market account, though. These accounts generally restrict the number of transactions you can make by debit card, electronic transfer or check.

3. Certificates of deposit (CDs)

CDs are a type of savings account that locks up your cash for terms between three months and five years. For this reason, they’re a bit less popular than high-yield savings accounts. Nonetheless, a CD can pump up your savings thanks to high APYs.

As of March 2024, the average interest rate for a one-year CD was 1.83%, according to the FDIC. However, a number of one-year CDs as of this writing were promoting APYs above 5%.

A big drawback to CDs is that you typically must lock in your money for a certain period of time. Otherwise, you could lose interest in the form of an early withdrawal penalty if you take out money before the end of the CD term. Generally speaking, you should put cash in a CD only if you’re certain you won’t need the money during the CD term.

Despite any disadvantages, the U.S. Securities and Exchange Commission (SEC) touts CDs as one of the safest options for savings.

4. Workplace retirement plans

Millions of American workers contribute to retirement plans set up by their employers.

So, what is a workplace retirement plan?

A workplace retirement plan lets employees contribute some of their pay to an account that invests in things like stocks, bonds, mutual funds and exchange-traded funds (ETFs). In some cases, the employer might match your contributions.

One of the most common workplace retirement plans is the 401(k), which is available to private-sector employees. Among the benefits of a 401(k) is its tax advantages. For example, contributions to a traditional 401(k) are made on a pretax basis, thus reducing your current taxable income. Taxes are due on any withdrawals from a traditional 401(k).