Lower risk investments

Money market mutual funds. Many investors join together to purchase a pool of money-related investments, purchasing shares in a common fund rather than owning the investments directly. Returns tend to be better than savings accounts or CDs, because the funds are not government insured. Like most mutual funds, money market funds carry management fees that can lower your rate of return, so consider fees along with performance track record. See the Mutual Funds section below for details.

Series EE Savings Bonds. By purchasing a U.S. Savings Bond, you loan the government money for a specific period of time at a particular interest rate. Savings Bonds are sold in amounts ranging from $25 to $10,000, and are available from banks and credit unions without a fee. They are sold at face value, accruing fixed annual interest at an announced rate, for up to 30 years. To earn interest on the full term of ownership, you must hold the bond for at least 5 years; check this requirement at the time of purchase. Savings bonds and treasury bills may be purchased by individuals directly from the government; see details at www.treasurydirect.gov.

Treasury bills (T-bills), notes and bonds. These bonds can be purchased from the government directly at no charge, or from a broker (ask if there is a fee). The minimum investment is $100, and it's guaranteed by the government. T-bills are purchased at a discount, in short investment periods (4, 13, 26 and 52 weeks), and pay off their face value at maturity. Other treasury bonds can be bought below or above face value ("par"), and pay regular interest ("coupon rate"), usually twice a year. A $1,000 bond with an interest rate of 3% would pay $15 every six months until it matures, when it can be redeemed for its face value. You can always sell your bond as you would sell a stock. However, be aware that a bond's price fluctuates before reaching maturity. So if you sell prior to maturity, you risk getting less than you paid for the bond.

Municipal bonds ("Munis"). These are issued by city, state, or county governments. If you live within the geographic area covered by the government agency issuing the bond, you will probably collect the interest tax-free. If you live outside the tax exempt area, you might owe tax on your interest earnings. Any gain you realize by selling the bond (which is separate from interest earnings) is taxable. Muni bonds come in many investment grades, a code used by ratings agencies to assess risk. The top "AAA" grade muni bonds have lower risk. Muni bonds with lower ratings or no rating can be riskier. Ask if the bond is insured. The minimum investment may be $5,000 or more.