Income Generating Investments -  Comparison Chart

Income Generating Investments - Comparison Chart

The updated chart below provides a quick comparison of several different asset classes that produce income for investors. It includes assets deemed to be almost totally safe, such as FDIC insured CDs and U.S. Treasury Securities to more risky investments such as dividend stocks.

The updated chart below provides a quick comparison of several different asset classes that produce income for investors. It includes assets deemed to be almost totally safe, such as FDIC insured CDs and U.S. Treasury Securities (although Treasuries were recently downgraded, we will consider them to be a safe asset class) to more risky investments such as dividend stocks.

Updated: January 18, 2017

INVESTMENT Advantages Disadvantages Best Current Interest Rate* Risk to Principal Tax Attributes
Savings or money market accounts Many accounts require only $1; very liquid Transaction costs; no guarantee of rate stability if short term rates decline Rates as high as 1.10% in nationally available online accounts. For FDIC insured banks, the standard deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. Fully taxable in the year of accrual
Certificates of Deposit Provides a guarantee of income should short term rates fall. Rates for longer term CDs are higher than savings accounts. Not liquid for term of CD (without significant penalty). APY rates may be slightly higher than online savings accounts for terms of 1-year and longer.

Top 1-year CDs pay 1.35% APY. Some 5-year CDs pay as high as 2.25% APY.
For FDIC insured banks, the standard deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. Fully taxable in year of accrual.
Federal Credit Union Accounts May be operated similar to online savings accounts or CDs Often difficult to find a FCU for which you qualify with the products you want Depends on particular FCU and duration but often higher than big banks.

Rates are comparable to those offered for equivalent products by banks.
For NCUA insured credit unions the standard deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. Fully taxable.
Fully Taxable Money Market Funds Usually very liquid Rates have not been very competitive with alternatives; yields may not rise as quickly as some alternatives if short term rates rise. Retail funds as high as 0.15%. Not insured. Although very rare, principal invested may fall below par ("break the buck"). Fully taxable in the year of accrual
Tax-Free Municipal Money Market Funds Usually very liquid; most beneficial to those in the higher federal and state tax brackets If tax advantages are fully utilized, the effective return is ordinarily above that of fully taxable alternatives Approximately 0.10%. For investors in the highest federal tax bracket (35%) who are residents of high taxing states may be equivalent to a fully taxable yield above 0.05%. Although very rare, principal invested may fall below par ("break the buck"). The US Treasury, however, has guaranteed that the principal deposited in qualifying 2a-7 funds as of September 19, 2008 will be insured for one year. Fully tax free provided that you are a resident of the appropriate state for the entire year
US Treasury Securities Very liquid May decline in value if interest rates rise Differs according to duration. Compare Treasury rates.

Currently 2.30% for 10-year security.
  Not subject to state and local taxes.
Series I Bonds Relatively high yields; strong protection against inflation even where short term interest rates do not rise Absolutely not liquid for 1 year; penalty of 3 month interest forfeiture if redeemed in fewer than five years. Maximum purchase is $10,000 per calendar year per individual in electronic format (may also purchase up to $5,000 per year using a Federal tax refund. 2.76% for new bonds through April 30, 2017, reset bi-annually based on CPI-U thereafter.  Not recommended until fixed rate component returns to prior levels. No risk to principal; backed by US Full Faith and Credit Not subject to state and local taxes. Since interest accrues, federal tax is deferred until redemption
Treasury Inflation Protected Securities Like all US Treasuries (except I Bonds), very liquid; strong protection against inflation due to link to CPI-U May lose value if interest rates rise and inflation (as reflected in the CPI-U) does not rise as quickly Approximately 0.80% on the 10-year TIPS.

 

No risk to principal if held to maturity; backed by US Full Faith and Credit; may trade at values significantly below par before maturity Not subject to state and local taxes. Interest is fully taxable in the year in which it is paid. Phantom interest is taxable in the year in which the bond's principal appreciates in accordance with changes in CPI-U.
Agency Bonds Usually very liquid. Benefits are greater for those holding state and local tax exempt agency bonds in highest tax brackets of highest taxing states. Callable agencies may offer a substantial yield premium over other short term securities Longer term agency bonds may lose value very quickly if interest rates rise and bonds are not called. Long-term callable state and local tax-free bonds with 3.00% coupons are trading, but may trade below par value if rates rise before called. Risk to principal may exist; may trade at values significantly below par before maturity Certain agency bonds are not taxable at the state and local level; interest is federally taxable in the year that it is paid.
Municipal Bonds, including Pre-Refunded Municipal Bonds Usually very liquid; yields often exceed after tax yields for taxable bonds and cash equivalents for investors in higher tax brackets Even the shortest term bonds may lose value if interest rates rise Current average 10-year yields at 2.30%, which is an after-tax equivalent over 3% for someone if a 28% Federal tax bracket. Default risk (risk to principal) exists (mitigated for pre-refunded municipal bonds); may trade at values significantly below par before maturity Usually not federally taxable, and usually state tax free to residents of the issuing state
Dividend Stocks High quality Dow Dividend Stocks can offer yields between 3-4%. Stocks price can drop and investors can lose principal. 3-4% yield. Investor can lose all of their principal. Tax rate on qualified dividends is 0% to 15%. To be a qualified dividend, investor must "must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date."

This chart may be shared and forwarded to others. It can be posted on other sites as long as the following link is included in the article or post as attribution: Comparison of Savings Accounts CDs, Treasuries, Munis, and Other safe Investments – BestCashCow.

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