Whether you prefer the security of a specified return or you need to diversify your investment portfolio, fixed rate investments have a spot in your financial holdings. Many individuals like to hold fixed rate products in addition to riskier stock investments to offset the stocks' volatility. Retirees or those with a shorter investment time frame may also prefer a fixed return for extra security.
1. Fixed Rate Annuity
When you invest in an annuity, you make a lump sum contribution in exchange for future payments. For example, you might invest $100,000 and receive payments of $500 every quarter for the life of the annuity.
Annuities can be a fixed or variable rate product. If you want a product with a guaranteed return, invest in a fixed rate annuity. Fixed rate annuities offer a stated rate of interest for the life of the annuity.
You can receive annuity payments immediately, or you can defer the payments to a later date and let your contribution grow.
When you purchase a bond, you loan money to a company, government, or municipality. At the end of the bond's term, you get your initial investment back. During the bond's term, you receive regular interest payments.The terms and interest rate are stated when you purchase the bond so that you know what your return will be. For example, if you purchase a $1,000 bond with a 5 percent annual coupon, this means the bond makes a 5 percent payment each year.
If you are unhappy with your bond's interest rate or want your money sooner than the bond's maturity date, you can sell your bond on a secondary market.
Though bonds provide a guaranteed return, they are not a guaranteed investment. Your money is not protected or insured. You can minimize risk by opting for short term bonds and selecting established entities. Bonds for smaller companies or for longer terms usually offer larger interest rates due to the extra risk.
3. Certificate of Deposit
A certificate of deposit is a savings product that is insured by the Federal Deposit Insurance Corporations (FDIC). CDs are offered in short and long terms; the required contribution varies based on the product.
When you make a deposit into a CD, you are unable to access your money until the CD matures. If you need your money before the maturity date, expect to pay an early withdrawal fee.
Though variable rate CDs are available, you should invest in a fixed rate CD for a promised return.
If you want to know exactly how much your money will earn, add a fixed rate investment to your savings portfolio. Consider adding these three fixed rate products to save for retirement or life's unexpected events.