Income Generating Investments - Comparison Chart

Income Generating Investments - Comparison Chart

The 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 savings and CD accounts and U.S. Treasury Securities, to assets that introduce more risk, such as dividend stocks.

Updated: {{=date}}

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 2.50% 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 online 1-year CDs pay 2.65% APY. Some online 3-year CDs pay as high as 3% APY.  Local rates at banks and credit unions near you may be higher.

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 1.80%. Only valuable for ultra high net worth individuals, corporations, and not for profits at the moment. Since these rates have not been competitive for years, money market funds are not recommended at all for individuals.

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 1.50% in yield for funds geared to a 10-year duration. For investors in the highest federal tax bracket (35%) who are residents of high taxing states may be equivalent to a fully taxable yield close to 2.50%.

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 3.19% for 10-year Treasury.

 

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.

2.52% for new bonds through October 31, 2018, reset bi-annually based on CPI-U thereafter.  Not recommended until fixed rate component becomes significantly higher than its current rate of 0.30%.

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 bond is 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 3-5%.

Stocks price can drop and investors can lose principal.

3-5% 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.


Banks Paying Above Average Savings Account Rates

Banks Paying Above Average Savings Account Rates

Rate information contained on this page may have changed. Please find latest savings rates.

We all know that savings account rates have been on a path to nowhere over the last three years since the start of the global financial crisis. Back in 2007, savings rates were as high as 6% but now the average is closer to .50% APY. But with a little bit of research, you can still find savings accounts at 1% APY and above - some even higher than 1.50% APY.

Savings PiggybankWe all know that savings account rates have been on a path to nowhere over the last three years since the start of the global financial crisis. Back in 2007, savings rates were as high as 6% but now the average is closer to .50% APY. But with a little bit of research, you can still find savings accounts at 1% APY and above - some even higher than 1.50% APY. While that doesn't sound like much, it's still a full percentage higher than the national average. So, looking at our rate database, here are a few ideas:

National Online Banks

  • CNB Bank Direct - CNB pays 1.15% APY on an online savings account, the highest rate in the country according to the BestCashCow rate tables. It requires $1 to open and and start earning interest. The online bank is a division of The Citizens National Bank of Bluffton.
  • American Express Savings - Personal Savings from American Express is offering a 1.00% APY online savings account. The bank has consistently received positive reviews from users and generally keeps its rate in the top 10. It's easy to open an account and there are no minimum balance requirements.
  • Aurora Bank - Aurora bank pays 1.06% APY but it requires a minimum balance of $100,000.

Local Banks and Credit Unions

You can also find some above 1% savings account rates by taking a trip to your local bank. Here are some of the offers we found:

While I realize most of you do not live near these banks or aren't eligible to join the Aflac credit union, almost every state and zip code in the country has a bank that is paying significantly above the national average. Click the "Savings" tab above to view savings account rates in your local area.

There no reason to stick with a low rate when FDIC insured banks are offering to pay more. Help yourself and your pocketbook by looking to get more for your savings.


American Express: Not Just for Credit Cards Anymore

American Express: Not Just for Credit Cards Anymore

Rate information contained on this page may have changed. Please find latest savings rates.

The credit card giant now offers a 1.00% online savings account, with no fees and no minimum deposit. They also offer no-minimum deposit CDs.

When you say the name American Express, most people think of a credit card. That’s not surprising, considering there’s over $620 billion worth of purchases made on American Express cards each year, according to their website. Now, they’re also offering a High-Yield Savings account and CDs at very competitive rates.

The American Express High-Yield Savings account boasts a 1.00% APY, with absolutely no fees and no minimum balance requirements. The nice thing about this account is that you can easily link it up to three of your accounts from external banks, so there's no need to switch banks. If this 1.15% APY beats the savings APY at your regular bank, you can simply transfer money back and forth between this American Express savings account and your other bank accounts.

If you’re looking for something longer-term with a higher APY, American Express is offering a 3-year CD at 1.45%, a 4-year CD at 1.60%, and a 5-year CD at 2.15%. Before you open one of these CDs, you should be sure that you can invest it for the full-term of the CD. If you open an American Express CD with a term of more than 12 months, you can be charged a penalty of up to 6 months interest if you withdraw your principal or close the CD. However, since there is no minimum balance requirement to open one of these CDS, so you can invest as little or as much as you feel comfortable with.

These rates are some of the most competitive on the market today. While it's possible to find a slightly higher APY, the brand-recognition of America Express, the no minimum deposit, and the no maintenance fees make these accounts enticing. Just be sure to read all of the terms and conditions before opening the account, like you would for any financial product.