The Best High-Yield Investment Options for 2022

high-yield investment alternatives

Investors are always looking for good returns on their investments. Unfortunately, achieving higher returns often means taking on additional risk, but in an increasing interest rate environment, there are several ways you can achieve higher returns with less risk. Keep reading for our high-yield investment alternatives.

Of course, you should carefully vet all potential investments before investing.

How to Get a Good Yield on Your Cash in 2022: High-Yield Investment Alternatives

If you’ve had money sitting in a bank account for the past few years, you’ve become accustomed to minimal interest income. Most banks have been paying significantly less than 1% for years. However, the recent interest rate increase by the FED has also increased the amount people are earning on their savings. This is because banks’ interest rates are tied to the Federal Reserve‘s rate.

Based on recent announcements from the Fed, interest rates should continue to increase through 2023. 

Even without future increases, many financial institutions currently pay at least 3% on funds sitting in accounts. This is the highest rate that consumers have earned since 2009. 

If you want to take advantage of the higher rates, you should consider avoiding investments that lock your funds into a set rate. Because the rate will most likely increase, locking in a return now may mean you’ll miss the opportunity to achieve higher returns later.

Best High-Yield Investment Alternatives in 2022

There are several attractive options for achieving higher returns on your funds than leaving the money in a bank account.

best high yield savings accounts

Series I US Treasury Bonds

Series I US Treasury Bonds (also known as I-Bonds) are backed by the US government, which makes them a reasonably safe investment. I-Bonds pay interest based on the rate of inflation. The current yield on the bonds is 9.62%.  

The FED is raising interest rates to combat inflation, so the inflation rate should drop in the next 6-12 months. Furthermore, experts’ consensus is that the inflation rate will be closer to 6% in November. 

Your rate for the first six months is guaranteed when you purchase an I-Bond. After the initial guarantee period ends, the I-Bond rate will rise or lower based on inflation rates at that point. 

The money invested in I-Bonds locks in for one year. However, if you cash in the bonds before five years, there is an early withdrawal penalty of three months of interest. You should also note that the limit for each person is $10,000 of I-Bond purchases annually. You can purchase an additional $5,000 using your tax refunds, although the $5,000 limit is per tax return, not per person.

Municipal Bonds 

Municipal bonds are bonds financed by state or local governments. Because the government wants to incentivize investors to purchase these bonds, the interest earned on the bonds is tax-free for federal income tax purposes. In addition, most states do not charge income tax on bonds from the same state.

The yield on municipal bonds is usually lower than other investments, but the tax savings often make up for the lower yield. Municipal bonds are considered less risky than corporate bonds but riskier than US Treasury bonds. You can also purchase bond funds, which are made up of a portfolio of municipal bonds, if you don’t want to shop around for individual bonds. In addition, several investment firms offer state-specific bond funds to help you minimize state taxes.

Corporate Bonds

Various companies issue corporate bonds to raise capital for large projects or to increase working capital. Corporate bonds have various rates that determine the risk of the investment. The average yield on a BBB-rate corporate bond is 8.59% which is significantly higher than the return on savings accounts. You can buy corporate bonds in quantities of $1,000.

Most corporate bonds have long maturity rates (often ten years or more), so you should carefully consider the investment before locking in your money. 

High-Yield Bonds

AAA-rated corporate bonds are less risky than BBB-rated bonds. Because of the lower risk, the return is also considerably lower but still higher than bank account rates. The current average yield on an AAA-rate corporate bond is 4.09%. 

High-yield bonds are susceptible to declines in the market, and there is always the risk that the company will default on the bond.

Online Savings Accounts

Online banking institutions usually update their interest rates more quickly than traditional financial institutions. As a result, most of the growth in average savings account rates to date has been due to online banks.

Credit unions are also more inclined to increase savings account interest rates than larger banks. To open an account at a credit union, you’ll have to meet the criteria for membership which varies by institution.

Several online banks currently offer 3%, including Dollar Savings Direct and Quorum. While larger brick-and-mortar banks may eventually catch up, the quicker you can achieve a higher interest rate, the faster you can increase your interest income.

Certificates of Deposit

Certificates of deposit (CDs) are a good option if you don’t need access to your funds for a while. You can choose CDs of various lengths, but they are generally available for periods of six months to five years. A CD allows you to lock in a certain interest rate for the term of the CD. But keep in mind that locking in now may mean missing out on future interest rate increases. 

CDs often have early withdrawal penalties. In a rising interest rate environment, you should look for CDs with the lowest penalties so that you can withdraw your money early if the rates continue to increase.  

Several banks are offering attractive CDs without early withdrawal penalties, including CIT Bank (2.50% APY), Citibank (2.25% APY), and Marcus by Goldman Sachs (0.35%-2.20% APY). The interest rate will vary based on the length of the CD, and rates are subject to daily changes.

Final Thoughts on High-Yield Investment Alternatives

In a high-interest and high-inflation environment, there are several options for achieving higher investment returns. You’ll need to carefully consider your risk tolerance and how quickly you may need to access your funds. There are several low-risk options to achieve 2-3% return on your money.

We have answers to any questions you might have about taxes on high-yield investment alternatives or your investment income. Talk to the pros at TaxHack to get answers. Contact us today for a complimentary one-on-one strategy session with one of our pros.


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