6 Low-Risk Investment Options for Yield Seekers in a High-Rate Environment

In today’s interest rate environment, yield-seeking investors are finally seeing brighter days—especially those who favor low-risk strategies. While no investment is completely risk-free, there are reliable vehicles available that offer reasonable returns while minimizing exposure to market volatility or credit risk.

Whether you’re looking to preserve capital, generate steady income, or simply diversify your portfolio, the key lies in selecting options that align with your financial goals, time horizon, and risk tolerance. As Richard Carter, Vice President of Fixed Income Products and Services at Fidelity Investments, advises, “Do your homework. Diversifying the investments in your portfolio can help manage risk even within what might be considered low-risk investments.”

With that in mind, let’s explore six compelling low-risk investment options that can help you generate yield while keeping risk in check.

1. Certificates of Deposit (CDs): Safe, Predictable Income

Certificates of Deposit (CDs) are one of the most straightforward ways to earn a fixed return over a specified period. When you invest in a CD, you agree to lock in a lump sum for a set term—commonly six months to five years—in exchange for a guaranteed interest rate.

Traditional CDs are issued by banks and insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor, per bank. Brokered CDs, which are purchased through brokerage firms, also carry FDIC insurance when issued by an insured bank. These allow you to diversify across institutions and even access better rates.

The downside? You’ll face penalties if you withdraw funds before maturity—unless you opt for a brokered CD and sell it in the secondary market (though this could mean taking a loss). Brokered CDs may also involve trading fees unless purchased as new issues through platforms like Fidelity, which now offers fractional CDs with a minimum investment of just $100.

Ideal for: Conservative investors who don’t need immediate access to their funds and want guaranteed returns with minimal risk.

2. Money Market Funds: Liquidity with Competitive Yields

Money market mutual funds invest in high-quality, short-term debt securities such as U.S. Treasury bills, commercial paper, and municipal debt. Though not FDIC-insured, these funds are generally less volatile than other mutual fund types due to their conservative holdings.

Money market funds offer two key benefits: liquidity and diversification. You can typically redeem your money at any time, and because the funds are diversified across various instruments, they can help reduce issuer-specific risk.

However, yields fluctuate based on short-term interest rates, and in times of rate declines, returns may fall quickly.

Ideal for: Investors looking for a place to park cash temporarily while still earning a competitive return.

3. Treasury Securities: The Gold Standard for Safety

U.S. Treasury securities—bills, notes, and bonds—are considered among the safest investments in the world because they are backed by the full faith and credit of the U.S. government. Treasury bills mature in a year or less, notes span from two to 10 years, and bonds go out as far as 30 years.

For investors concerned about inflation eroding returns, Treasury Inflation-Protected Securities (TIPS) offer a hedge by adjusting the principal based on changes in the Consumer Price Index (CPI).

Treasuries can be purchased directly through TreasuryDirect or via brokers like Fidelity, which also provide access to the secondary market—something TreasuryDirect does not offer.

Ideal for: Long-term investors seeking safety, or retirees who want predictable interest payments and principal protection.

4. Agency Bonds: Slightly Higher Yields, Still Low Risk

Agency bonds are issued by U.S. government-affiliated institutions like Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. While not all agency bonds carry the same guarantee as U.S. Treasurys, they are generally considered high-quality due to their government affiliations.

For instance, Ginnie Mae securities are backed by the full faith and credit of the U.S. government, while others like the Tennessee Valley Authority (TVA) rely on project revenues. Investors may be rewarded with slightly higher yields than Treasurys of comparable maturity.

That said, agency bonds do carry some credit and default risk, and their prices can fluctuate with interest rate movements.

Ideal for: Income-focused investors willing to take on slightly more risk for higher yields than Treasurys offer.

5. Bond Mutual Funds and ETFs: Diversified Income Streams

For investors who want built-in diversification and professional management, bond mutual funds and exchange-traded funds (ETFs) are compelling. These funds pool investments in a range of bonds—corporate, municipal, or government—and offer monthly income distributions.

Unlike individual bonds, funds don’t have a set maturity date, meaning they can provide ongoing returns but also fluctuate in value. This volatility may be a concern for those with short-term horizons, especially if the fund holds long-duration bonds.

Some funds may charge sales loads or ongoing management fees, but many low-cost options are available, particularly through platforms like Fidelity or Vanguard.

Ideal for: Investors seeking diversification and income, especially those comfortable with modest interest rate risk.

6. Deferred Fixed Annuities: Tax-Deferred Growth with Guaranteed Rates

A deferred fixed annuity offers a guaranteed return over a specified time frame—typically three to 10 years—while growing tax-deferred. These products are issued by insurance companies and not subject to annual contribution limits like IRAs or 401(k)s.

While they often come with no upfront fees, surrender charges may apply if you withdraw funds before a designated period. That said, most annuities allow up to 10% of the value to be withdrawn each year penalty-free.

Since annuity guarantees are backed by the financial strength of the issuing insurer, it’s essential to choose a reputable provider.

Ideal for: Near-retirees or retirees seeking stability, long-term tax-deferred growth, and guaranteed income options.

Final Thoughts: Finding the Right Fit

Today’s relatively high interest rates have made low-risk investments more attractive than they’ve been in years. However, even among low-risk options, there’s a spectrum of trade-offs in terms of yield, liquidity, tax implications, and risk.

Here are a few guiding questions to help narrow your options:

• Do you need access to your funds in the short term?
• Are you prioritizing capital preservation, income, or tax efficiency?
• Would you prefer a hands-off investment, or are you comfortable managing more complexity?

As Carter puts it, “Even low-risk investments may involve differences in credit risk, volatility, and payout timing. That’s why it’s important to diversify and evaluate your overall strategy.”

A financial advisor can help align your low-risk investment choices with your broader financial goals. Whether it’s building a ladder of CDs, investing in bond funds, or locking in rates with an annuity, you now have more ways than ever to earn steady yield without venturing far out on the risk spectrum.

Disclosure: All investments carry some level of risk. Past performance is not a guarantee of future results. Consider working with a financial professional to evaluate which investments best suit your individual needs.