7 Low-Risk Ways to Earn Higher Interest

In an era where traditional savings accounts offer paltry returns and market volatility keeps investors on edge, the quest for higher interest without undue risk has never been more critical. While no investment is entirely risk-free, several strategies allow savers and investors to boost their returns while maintaining a strong emphasis on capital preservation. Below are seven low-risk avenues to consider, each backed by historical performance and structural safeguards.

1. High-Yield Savings Accounts

Start with the most straightforward option: high-yield savings accounts. These FDIC-insured accounts offer significantly better returns than standard savings accounts, with yields often exceeding 3% in today’s rate environment. Their liquidity—funds are accessible at any time—makes them ideal for emergency reserves or short-term goals.

While yields vary by institution, the trade-off between convenience and return is minimal here.

2. Certificates of Deposit (CDs)

CDs are another FDIC-insured option, locking funds for a fixed term in exchange for higher rates. For example, a 12-month CD might currently yield 4%, while a 24-month CD could offer closer to 4.5%. A CD ladder—diversifying maturities—can mitigate liquidity constraints while capturing incremental gains.

This strategy balances accessibility with the potential for gradual yield increases.

3. Treasury Bills and Short-Term Government Bonds

For those seeking safety above all else, Treasury bills (T-bills) and short-term U.S. government bonds remain pillars of stability. While their yields are modest—perhaps 2–3% for a 6-month T-bill—they are immune to default risk. Their low duration also insulates investors from interest rate fluctuations.

In a rising-rate environment, short maturities allow reinvestment at higher rates without lock-in penalties.

4. Money Market Funds

Money market funds invest in short-term, high-quality debt instruments, offering liquidity and capital preservation. Institutional-grade funds often yield 2–3%, with minimal risk due to strict credit standards. While not FDIC-insured, their diversified portfolios and short maturities make defaults extraordinarily rare.

These funds are a practical bridge between cash and longer-term fixed-income investments.

5. Dividend Stocks with Stable Companies

Select dividend-paying stocks of companies with strong balance sheets and consistent payouts—think utilities, consumer staples, or telecommunications firms—can deliver steady income with lower equity risk. For instance, the S&P 500 Dividend Aristocrats, which have increased dividends annually for 25+ years, currently yield around 2.5%, far outpacing cash.

While equity exposure carries market risk, this subset of stocks has historically provided a cushion against inflation and volatility.

6. Short-Term Corporate Bond ETFs

Corporate bond ETFs focused on high-quality, short-duration debt (e.g., maturities under five years) offer a yield premium over government bonds. For example, a corporate bond ETF with an average yield of 3.5% compares favorably to a Treasury ETF yielding 2.5%, while credit risk remains muted for investment-grade issuers.

This strategy requires monitoring credit quality but can enhance returns without excessive risk.

7. Step-Up Certificates of Deposit

Step-up CDs increase their rates over time, a useful hedge against rising rates. For instance, a 5-year CD might start at 3% and rise to 4.5% in its final year. This structure allows investors to lock in a baseline yield while benefiting from future rate hikes.

Their terms require a longer commitment, but the incremental yield makes them a compelling option for those willing to plan ahead.

Conclusion: Balancing Risk and Reward

By combining these strategies, investors can construct a portfolio that targets 3–4% annual returns while keeping risk at a minimum. For example, pairing high-yield savings (3%) with a CD ladder (4–4.5%) and a small allocation to dividend stocks (2.5%) could yield an average of 3.5% with little volatility.

Historical data underscores their reliability: since 2000, short-term Treasuries have delivered a median annual return of 2%, while dividend aristocrats have averaged 6% total returns (including dividends). Meanwhile, money market funds have rarely dipped below 1.5% over the past decade.

In a world of trade-offs, these low-risk options offer a pragmatic path to outpace inflation and grow wealth steadily—without gambling on high-risk ventures. The key is diversification and patience, ensuring that capital remains secure while interest compounds over time.

Data sources: Federal Reserve Economic Data (FRED), Morningstar, and Bankrate.