You scrimp and you save and you’ve been responsible with your money. You deposit your money monthly and build your nest egg. The problem is that the interest rates are so low these days that putting your money in a savings account may no longer be the best way to invest your money.
The yields are so microscopic, you’re not even keeping up with inflation. If you are trying to make gains with your money, you may want to look into other ways to invest your money.
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Here are 5 ways to invest your money besides putting it in a low yield savings account:
1. Pay Off Your Credit Cards
Hopefully, you are paying down your credit cards first. The interest rates on a credit card balance are astronomical. Credit cards are one of the worst forms of debt you can have. You could be paying more than 30% interest in some cases. Compare that with the gains from a savings account and you’ll realize that it’s much better to pay off that credit card balance. Most people don’t realize that paying down your credit cards each month may be one of the best ways to invest your money. After all, putting your money away in a 5% CD does no good if you are paying 25-30% interest on a credit card balance.
2. Invest in High Dividend Value Stocks
You may think I’m crazy for suggesting this at a time when the stock market is so volatile. I mean, we are seeing daily triple digit losses in stocks. But notice that I am very specific about investing your money in high dividend value stocks. You are not looking for ways to invest your money in stocks that are risky or volatile. You want a stock that is stable, safe and steady. Often times, a stock that is paying dividends will pay out much better than the interest you gain in a savings account.
Remember to always do your research when you invest your money in the stock market. I have my investments, but I’m staying away from recommending any particular stocks in this article so you can do your own research. But I would recommend looking at fortune 500 companies and their stocks first. Stay with the companies that are in a stable market. Your goal is to park your money and earn on the dividends. Keep in mind, this is an alternative to a savings account. However, if you find the right stock that pays good dividends, it’s a great alternative to a standard savings account for investing your money
3. Join a Credit Union
Look into investing your money in the local credit union. Often times a credit union has better interest rates than the traditional bank. Credit unions are able to yield higher returns for their members because they are generally not for profit organizations that are member owned. Thus they can pass on more of their earnings back to their members and is generally a better place to invest your money if you are looking for a more traditional savings method.
There are many benefits to a credit union:
- Lower APR on loans
- Better rates of returns on savings accounts and CDs
- Often they have free checking accounts and ATM access
- Dividends paid to members
- FDIC insured
If you don’t know whether you qualify to join a credit union, you can do a simple search online to find a credit union here.
4. High Yield Online Checking and Savings
If you want to invest your money out of the traditional banks with low interest rates, but you don’t want to invest in riskier ventures, you may want to look into investing your money in online checking and savings accounts. There have been many reliable, FDIC insured online banks that offer high yield checkings and savings accounts.
For instance, I have an account with ING Direct.
One of their banking services is the Orange Savings Account, which offers a variable 1.00% Annual Percentage Yield. Take a look at the graphic on their site to compare with other types of savings accounts:
Here are some of the features of the Orange Savings Account:
- High Interest, No Fees, No Minimums
- Electronically links to your current bank and transfers are free and easy.
- Easy sign up process.
- FDIC Insured
Many online savings accounts can give better yields because of the lower operating expenses of being online. If you are looking for something that’s a little more traditional, with higher yields. You can find a good high yield bank that is FDIC insured. That way, you can have the security of a traditional bank, with the benefits of newer, high interest models.
5. Peer to Peer Lending
I must admit, I’m a fan of peer to peer lending. In my mind, this is a way that social networking has given the common person a way to invest your money in the same way that a bank does.
Basically, peer to peer lending allows people to connect with each other as lenders and borrowers. So, you can invest your money in a borrower and earn from the interest that the borrower pays on the loan. The benefit is that you are earning the higher rate of returns from the interest on the loan.
For instance, the company that I use, Lending Club, advertises a net annualized return of 9.6% on investment.
I’m actually earning returns closer to 17%, but I also have a aggressive investment strategy. You may want to be more conservative when you invest your money. However, even with a conservative strategy, you are getting a very good return on your investment.
Here’s a screenshot of my net annualized return with lending club:
While, I have a more aggressive investment strategy, even the conservative strategy get net good returns.
The key, as with any investment is to do thorough research. One of the benefits of a peer to peer lending service such as lending club is that they provide many research tools for their loans. When you browse through the borrowers, you can make a thorough risk assessment before you invest your money.
For instance, Lending Club performs a thorough credit check. That way, you can see all the details of the loan application. In addition, you can see that the information is verified through W-2′s and other official documents. This information is all provided to the potential lenders.
The other thing that I like is that there is a section that allows lenders the opportunity to pose questions to the borrower. That way you can ensure that all your questions are answered before you invest your money. I like to look at the questions that other lenders pose and see how thoroughly the potential borrower answers the question. I want to see that the borrower is responsible and treats the process seriously. If they provide thorough answers, I am more likely to invest my money in them.
Here’s an example of a loan application that you can review on their site:
As you can see, you can get a pretty good picture of your potential investment. The checkmarks signify that the information has been officially verified. As you can see above, the Gross Income has been verified by W-2. Also, the review of the entire application has been approved as well. That signifies that a complete credit check has been run on this borrower. You can also see that this person has no delinquencies in the last two years and based on his verified income, he can easily make the monthly payments on this loan. If he is thorough about answering the questions about this loan, this is a potentially good loan to invest your money.
If you are thorough with your research, you can net some very good gains when you invest your money with Lending Club.