Viewer Question: Can I Earn 5% and Stay Safe?

It's a question I've been hearing for 30 years: Can I earn more than risk-free investments are paying... without taking any risk or tying my money up?

Viewer Question: Can I Earn 5% and Stay Safe? Photo (cc) by CarbonNYC

Here’s a recent question:

Is there anything right now I can invest into that makes at least 5% and does not tie up my money for 4 years or more? CD’s are lousy and savings accounts are no better. – anonymous

Before I begin, if you want an answer to a question, could you at least tell me your first name? Geez, that doesn’t seem like too much to ask. 🙂

Now, here’s your answer: in a word, no. There is no safe investment that makes 5% and doesn’t tie up your money. In fact, even if you’re willing to tie up your money for five years, you still won’t earn 5%, at least not with zero risk.

The safest investment is widely considered to be direct obligations of the US government: treasury bills, notes and bonds. (The only difference between the three is when they come due: bills are the shortest maturity, coming due in as little as 3 months; bonds can go out as far as 30 years.) That’s because the government can print money, so it’s virtually impossible for them to default on a debt. This is as close to riskless as there is.

So if “safe’ is the requirement, treasuries are the benchmark. What are they paying? To find out, I simply Googled “current yields on treasuries” which took me to this page at the US Teasury website. As of Feb 1, 2010, here’s what riskless investments were paying:

  • 1 month: .05%
  • 1 year: .33%
  • 3 year: 1.41%
  • 5 year: 2.38%

Bank CDs and money market funds aren’t quite as safe as treasuries, because they’re not direct obligations of the government. Nor do they offer state income tax exemption. That’s why they may pay a little more interest than treasuries. But they still won’t pay 5%. When I did a search for CDs at my interest rate website,, the best rate I could find was 3.5% on a five-year CD.

Btw, anonymous, when I was a stockbroker (read about my background here) this was probably the most common investor demand I received: “I want more than the bank’s paying, but I refuse to take any risk.” This is a nonsensical request, no different than asking for a goose that lays golden eggs. And any investment adviser who promises to deliver on such a demand is either a fool, a liar or looking for a lawsuit.

So there’s your answer: there’s no gain without pain, there’s no wealth without risk. If you want to keep your money both safe and liquid (translation: you don’t want to tie it up) you’re not going to earn squat. If the return of your money is more important than the return on your money, the best you can do right now is shop your rates at, do the best you can for now and wait for higher rates. Which, btw, I’m confident will appear; if not this year, probably next.

And if you’re willing to ramp up the risk a bit to earn more? Stay tuned, because I’m going to be talking about exactly that in entries to come.


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