If you want completely safe investments that pay (generally) higher rates than savings accounts and money market accounts, you can look at U.S. Treasury securities. These represent U.S. government debt, and they pay higher interest rates if you’re willing to tie up your money for a while.
U.S. Treasury securities fall into four basic categories:
- Treasury Bills — These are short-term government securities, with maturities ranging from 30 days to one year.
- Treasury Notes — These securities have maturities of two, three, five, seven, and 10 years. They pay interest every six months.
- Treasury Bonds — These securities have terms of 20 and 30 years and pay interest every six months.
- Treasury Inflation-Protected Securities (TIPS) — TIPS pay interest every six months and are issued for maturities of five, 10 and 30 years. The principal is adjusted by changes in the Consumer Price Index, so the value keeps up with inflation.
We’ve presented the yields for 30-year Treasurys but recommend caution with this term. Despite the higher interest rates, it comes with much greater risk. Longer-term securities are subject to swings in market price, due to interest rate changes. For example, when interest rates rise, the market value of a long-term bond falls.
One bonus with U.S. Treasury securities is that interest paid on the securities is generally exempt for state income tax purposes.
You can purchase Treasury securities in denominations as low as $100 at the Treasury’s portal