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What are the Different Types of Low Risk Investments?

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  • Written By: Felicia Dye
  • Edited By: Heather Bailey
  • Last Modified Date: 01 September 2016
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Many people are under the misconception that making money with investments means taking substantial risks. Although it is true that some of the most notable returns are experienced that way, there are still numerous types of low risk investments that can produce favorable results. These include certificates of deposit, bonds, and Treasury bills.

Certificates of deposit, commonly referred to as CDs, are very low risk investments. A CD is similar to a savings account in many ways. Normally, there is a minimum required to obtain this type of financial instrument and a person with that sum of money or greater can deposit it into the bank for a specified period of time. In return, she will generally receive a specified amount of interest.

At the end of the allotted period, the CD holder is usually given a grace period where she can withdraw the funds. If she does not withdraw her money, it should roll into another session with similar terms. Many financial institutions charge fees for removing any portion of the funds at any time other than the grace period, but some allow a person to add to the CD in the midst of the term.

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Government bonds are also low risk investments. When a person invests in this way, she basically extends a loan to the government. She allows her money to be used for an extended period of time and upon reaching the maturity date, she can cash in her bond and receive her original sum of money and her profits. With US federal bonds, for example, a person can pay $25 US Dollars (USD) but receive a $50 USD bond certificate. When the maturity date is reached, she will get $50 USD plus interest that the money has earned over the years.

Bonds are also issued by private entities. They are considered to be a bit less safe than government bonds because there is more possibility that a private organization will go out of business. They are still considered low risk investments, however, because unlike stocks which could result in absolute loss, bond do provide rights to receive some compensation if a company goes bankrupt.

Treasury bills, commonly referred to as T-bills, are generally considered very safe short term investments, especially when issued by the US government. T-bills are similar to bonds. These financial instruments have set denominations, such as $1,000 USD or $10,000 USD. A person purchases the T-bill for less than that amount and allows it to mature, usually for several months or a year. Upon maturity it will be at its full value, and the amount of profit made will be dependent on the initial price paid.

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