In the financial realm where certainty is a prized possession, a certificate of deposit offering a 6% return might seem like a golden ticket. But if you’re pondering over what the alternative to a 6% CD is, you might unveil avenues that not only match but potentially top such returns. Keep reading to learn more.
What Is the Alternative to a 6% CD Account?
If you’re seeking alternatives to a 6% CD, there are several options that may offer higher yields and greater potential for growth. These alternatives include:
- Stock market investments
- Real estate investment trusts
- Dividend aristocrats
- Mutual funds and ETFs
- Peer-to-peer lending
Each of these alternatives carries its own risk profile and potential for returns, and they should be considered as part of a diversified investment strategy. Here’s a closer look at each.
Stock Market Investments
The stock market is the quintessential alternative for those seeking to outperform CDs. Equities offer dynamic growth potential that can significantly outpace traditional CDs.
Over the long term, a diversified portfolio of stocks has the capability to deliver returns that a fixed-rate CD might not match, especially in times when market conditions are favorable.
When it comes to balancing the equation of risk and return, bonds can be the middle path. Corporate and municipal bonds, and even some government securities, offer interest rates that can compete with the best CD rates, coupled with the opportunity for capital gains.
Inflation-protected securities, like TIPS, adjust with inflation and can serve as a sturdy hedge in your investment portfolio.
Real Estate Investment Trusts
For a twist on the traditional, REITs present an opportunity to invest in real estate without owning physical property. REITs often distribute dividends that can exceed the returns on a 6% CD and bring the added advantage of diversification against market volatility.
Investing in companies with a strong history of dividend growth, known as Dividend Aristocrats, can offer an alternative to those hunting for the best CD rates. These companies have histories of increasing their dividend payouts and can provide an income stream along with the potential for stock price appreciation.
Mutual Funds and ETFs
Mutual funds and exchange-traded funds allow investors to pool their money in a diversified portfolio managed by professionals. Some funds are specifically designed to generate income, which could rival the returns from the best CD rates while offering the potential for capital appreciation.
The digital age brings peer-to-peer lending platforms where you can lend money directly to individuals or businesses. This method can yield returns that outperform a traditional 6% CD, but be mindful — it carries a different risk profile.
Important Factors To Consider
Before diversifying your portfolio beyond the realm of CDs, it’s crucial to weigh a few key considerations.
Inflation and Your Investment
Any conversation about investment alternatives to a 6% CD would be incomplete without addressing inflation. With inflation in the mix, the real rate of return on a CD can be significantly reduced.
Alternatives that offer inflation-beating growth or income can be vital to maintaining the purchasing power of your investments.
Balancing Act: Risk vs. Return
As you scout for alternatives to a 6% CD, it’s crucial to remember the balance between risk and reward. Higher potential returns often come with higher risk, and your investment choices should align with your risk tolerance and financial goals.
Consulting the Experts
Before altering your course, consulting a financial advisor can help clarify your objectives and risk profile, ensuring your investment decisions are made with a compass that truly points north.
As you unlock the door to potentially better returns, remember that exploring alternatives to a 6% CD is not about casting safety aside but about informed diversification. Whether it’s equities, bonds, REITs or other investment vehicles, each has its own set of advantages and disadvantages to know. By asking, “What is the alternative to a 6% CD?” you’re taking the first step toward a more robust financial future.
FAQHere are the answers to some of the most frequently asked questions regarding CD accounts.
- Are there any 6% CDs?
- Finding a 6% CD in the current market is quite rare but there are some financial institutions that occasionally offer this rate as a promotion or limited-time bonus. As of Nov. 9, 2023, you can find rates in this range at Bayer Heritage Federal Credit Union. Make sure you read the fine print to understand the stipulations and membership eligibility.
- What should I do instead of a CD?
- Instead of a CD, consider diversifying your investment portfolio. Options like high-yield savings accounts, bonds, stocks, mutual funds, ETFs and REITs can provide higher yields or growth potential. Your choice should align with your financial goals, risk tolerance and investment horizon.
- Who is offering a 5% CD rate?
- Some credit unions and online banks like BMO Bank, Bread Savings and Bask Bank offer CD accounts with rates in this range. These offers may require large deposits or come with specific terms and conditions.
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.