Why Are More Than Half of Americans Saving Their Money in These Investments?

by Contributing Author

If you intend to enjoy a comfortable financial future with your loved ones, there is no doubt that investing should be top of your to-do list with lots of research, like reading the trader options-focused newsletter. The Coronavirus pandemic showed us how a seemingly stable economy could quickly turn on its head, thus leaving everyone who wasn’t saving for the future scrambling for income. While the economies of most countries continue to struggle through rising interest rates and high inflation, investors in the U.S. are still taking calculated risks and putting some of their hard-earned money into shares, high-yielding accounts, etc.

So, what are these investments many investors are making this year and look forward to extending to 2023 and beyond? Why are these investments becoming more popular now than in the pre-pandemic period? This insightful piece will answer these questions, so keep reading.

Why Invest?

Investing is essential to most people looking to find another source of income or get out of a financial jam. You can even invest as a way of funding your retirement. Eventually, if you invest, you will grow your wealth, increasing your purchasing power and meeting your financial goals over time. Americans are investing in multiple ways today, from higher-risk choices like stock index funds to medium-risk alternatives like corporate bonds and safe picks such as money market accounts and CDs.

If you are looking to invest, that is great news because it means you can find investments that fit your risk profile and provide a variety of returns.

Short-Term Certificate of Deposit

Generally, Certificates of Deposit or, in simpler terms, CDs from banks offer relatively higher interest rates than savings accounts. If you are sure that rates will escalate, a short-term CD may be a perfect option because you can re-invest at higher rates when it matures. So, why are short-term certificates of deposit good for investment?

Are you a retiree and don’t need immediate income? In addition to that, can you lock up your money for a little bit? Investing in short-term certificates of deposit may be a better option because of their higher payouts and safety. A CD will work well for you if you are a risk-averse investor. And the better if you are the type who needs funds at a specific time and can tie up your money in exchange for some more yield than you would find on a savings account.

Generally, financial advisors consider short-term Certificates of Deposit safe investments. However, they will warn you of the reinvestment risks that CDs carry. For instance, investors risk earning less when the interest rates fall.

High-Yield Savings Accounts

This type of savings account will pay you approximately twenty to twenty-five times the national average of a traditional savings account. Typically, rates on high-yield savings accounts can easily beat rates that traditional brick-and-mortar banks offer. With these accounts, you get to earn a much better APY than you would with another savings option. So, why are many Americans leveraging this investment option?

A high-yield savings account is great if you intend to access the money soon. Additionally, if you are a risk-averse investor, this savings account will also work well for you, especially since you want to avoid the risk that you won’t get your money back.

Although you don’t have to worry about losing what you deposited because the banks offering these savings accounts are FDIC-insured, you risk losing purchasing power due to inflation if rates are too low.

Series I Bonds

Individual investors can now access savings bonds from the U.S. Treasury. Among the multiple options in this category, the Series I bond seems to be increasingly popular in 2022. One of the main benefits of Series I Bonds is that it helps investors build protection against inflation. The investment pays a base interest rate before adding on a component based on the inflation rate. A Series I Bond helps you earn a fixed rate of interest and a rate that changes as inflation changes. So basically, this is what happens; if inflation rises, the payout also rises, and the reverse is also true as the interest rate falls if inflation falls. With an I Bond, the inflation adjustment resets after every six months.

So, why are Series I Savings Bonds becoming an increasingly popular option among individual American investors? Here is the thing! Series I Savings Bonds share numerous features with other government-issued debt. For example, they attract risk-averse investors who are cautious about running any risk of default. Additionally, these savings bonds will work well for you if you want to protect yourself from inflation. The downside is that Series I Bonds limit individual investors to buying $10,000 only in any single calendar year. But the good news is that investors can still apply up to an extra $5,000 in their annual tax refund to the buying of these savings bonds.

You can purchase Series I Bonds directly from the United States of America’s Treasury through its website (treasurydirect.gov). Luckily, the U.S. government doesn’t charge individual investors a commission for doing so.

Short-Term Government Bond Funds

Short-term Government Bond ETFs focus on investing in debt securities that the U.S. government and its agencies issue. Typically, the bonds feature maturities of not more than five years. These mutual funds or ETFs have some similarities to short-term CDs because they usually don’t expose investors to many risks when interest rates rise. So, why are Americans so much interested in short-term government bond funds?

Short-term government bond funds are attractive because they are typically one of the best choices for beginning investors and individual investors looking for cash flow. Additionally, these funds are well-suited for low-risk investors. The Short-term Government Bond ETFs may also work well for risk-averse investors. However, some kinds of funds may fluctuate more often than others due to changes in the interest rate.

Final Word

While you consider investing in any of the above options, it would be best to consider multiple factors like time horizon, financial situation, risk tolerance, knowledge of financing investments, and how much money you can invest. Suppose you aim to grow wealth over time. In that case, you can opt for a higher-risk investment and aim for a higher return. Alternatively, you can take on less risk, earning you a modest return. Another option is taking a balanced approach where you have safe money investments and still get the chance to enjoy long-term growth.

But first things first! Before investing, make sure you first research and understand the advantages and drawbacks of every investment option. How does each of them fit into your overall financial plan? The first step to investing is opening a brokerage account if you are just getting started. With time, you will realize that investing can be surprisingly affordable.