Three best-paying alternatives to investing in certificates of deposit (CDs)

Thanks to high interest rates, certificates of deposit (CDs) have been a popular investment this year. The top CDs listed here currently offer rates of 4% to 5%. It’s a solid return, especially if you’re looking for a safe investment that won’t lose you money. With CDs, you are guaranteed a rate for the entire term.

But if you’re looking for long-term growth potential, CDs aren’t a good option. There are much better investments that could earn you double or more. Below, you’ll find three options that tend to offer better long-term returns than CDs.

1. Index funds

An index fund is an easy way to invest in stocks. This type of investment vehicle aims to track the performance of a specific market index. For example, an S&P 500 index fund tracks the S&P 500 index, which features 500 of the largest publicly traded U.S. companies. The S&P 500 has a long-term average return of around 10% per yearso index funds that track it are a popular choice among investors.

The great thing about index funds is that they do the work for you. You don’t need to worry about building an investment portfolio. You can get a diversified portfolio with just one investment. Index funds also have low fees, some costing less than 0.1%!

If you’re ready to start building wealth with index funds, you’ll need a broker. Robinhood is widely considered one of the best options for beginners as it has an easy-to-use platform and commission-free trading. Click here to learn more and open an account today.

2. Real estate investment trusts

Investing in real estate sounds exciting until you learn all the time and money involved. Flipping houses or managing rental properties is a full-time job and you also need money up front to get started.

Luckily, there is a simpler option. Real estate investment trusts, or REITs for short, were designed so anyone could invest in real estate. REITs own income-producing real estate and are bought and sold in shares on stock exchanges. They are a way to invest in real estate through online brokerage accounts like these, without large upfront costs or a significant time commitment.

Historically, REITs have generated excellent returns. From 1972 to 2023, they had a average annual return of 12.7%measured by the FTSE Nareit All Equity REITs index. That even beats the S&P 500.

3. Deadline Funds

A target date fund invests in stocks and bonds for you and is set up for a specific retirement year. For example, if you want to retire in 2050, you could invest in a 2050 target date fund. When your retirement year is decades away, the target date fund will invest heavily in stocks to maximize growth. As retirement approaches, money will be moved into bonds for greater stability.

The benefit of target date funds is that you can take a set it and forget it approach. You don’t need to worry about rebalancing your portfolio to ensure you have the right mix of stocks and bonds. All you need to do is choose a target date fund for your retirement year and invest.

Target-date funds are a common option in retirement plans, including 401(k)s and top-rated individual retirement accounts (IRAs). You can also invest in them through standard brokerage accounts.

CDs can work well when you want reliable, stable growth for your savings. For long-term investments, they are not the best option as you could create more wealth with index funds, REITs, or target date funds.