Is There Such a Thing as Risk-Free Investing?
Most definitions for “investing” indicate that the term is used to describe money that is invested with an expectation of profit. This definition determines that an investment doesn't necessarily need an element of risk in order to be considered investing, even though many people fear investing because of the risk of losing their money.
Risk-free investing and savings options are insured by the Federal Deposit Insurance Corporation (FDIC) up to a certain amount of money per person. The FDIC is an independent agency of the US government that is fully backed by the government. Since the FDIC was created in 1933, no one depositing money into an FDIC insured institution has lost any of their FDIC-insured funds.
You have a few options for investing your money (saving money with an expectation of earning a profit on the money you save) that are considered free of risks for losing any of the money you contribute. In addition to the standard or online savings accounts and interest-earning checking account, the following are risk free investment strategies for growing your money:
Money Market Funds: Often confused with Money Market Accounts which are not risk-free, the Money Market Fund is a deposit account that earns interest. If you open a Money Market Fund with an FDIC institution, your insured up to $100,000 for standard accounts and up to $250,000 for retirement Money Market Funds. These accounts offer a higher interest rate than your typical savings or interest-earning checking account, but usually limit the number of transactions you can make per month.
Fixed Rate IRA: If you're looking to deposit your money and save for a specific length of time, the fixed rate IRA might be a good option. Fixed rate IRAs are funded with Certificate of Deposits, give you a fixed interest rate of return, and all interest is tax deferred. In some cases, you may be able to deduct contributions to fixed rate IRAs on your federal income taxes (check with an accountant for eligibility requirements). Like a traditional IRA, if you withdraw your money before it reaches the date of maturity, you will end up with an early withdrawal penalty – however, leaving your money in for the full term gives you a grace period at maturity during which you can withdraw the funds without penalty or re-invest.
Certificate of Deposits: When you use a CD to save your money, you earn higher rates of return the longer the savings term you select. You are basically loaning money to the bank, and earning an interest for doing so. The longer you “loan” the money, the more you will receive in interest. CDs opened at FDIC insured institutions will be guaranteed by the federal government up to specified limits.