How to create a passive income stream

If you’re worried your salary is not enough to help you save a deposit for your first property or prepare you for retirement, building wealth through passive income is a strategy that might appeal to you.

What is passive income?

Passive income is a source of revenue that continues even after the work is complete, for example, royalties from a book or film.

We’re not suggesting you go out and write a book (not very passive) or make a blockbuster movie (not very savvy), but some of the below options do require a little effort in the beginning to then pay you in the long-term without you needing to lift another finger.

What we’ve tried to highlight here is how to make your money (that you’ve already earned) make more money (without you having to do much), so they do rely on you having some initial capital already behind you.

Some of these strategies involve an element of risk. If you are not fully comfortable with that, it might be more advisable to go down the slightly more labour intensive route of selling your stuff on eBay, setting up a side business or writing that bestseller after all.

What ways can I earn a passive income?

Here are eight strategies for creating a passive income stream:

1. 1. Switch your bank account
   2. Earn interest on savings
   3. Use a cashback or rewards credit card
   4. Buy via cashback websites
   5. Try out robo-investing
   6. Rent out a room (or parking space)
   7. Invest with peer-to-peer lending
   8. Purchase dividend-yielding stocks

1. Switch your bank account

Loyalty to your bank is a thing of the past, and banks know it. That’s why so many offer cash switching incentives (the current highest is £200 from HSBC) for current accounts, many of which link with savings accounts, some with interest as high as 5%.

Not all banks are part of the switching scheme, but those that are guarantee all direct debits and standing orders are transferred to your new account within seven days.

If they fail to do this and you wind up with a late payment charge from your old account, your new bank should cover it.

Most bank accounts have a minimum pay-in and a two direct debits requirement – make sure you meet them to reap the full benefits of the switching rewards.

Some charge a monthly fee, so watch out for that when you switch over as you do not want to pay out more than you earn.

2. Earn interest on savings

In today’s low interest climate, the best rates on savings are often reserved for fixed-rate accounts or bonds. These are savings accounts that lock away your money for a set period of time. Generally speaking, the longer it’s locked away, the higher the rate.

Only use these if you are comfortable with not having access to your money. If you suddenly realise you need it before the bond is up, you will most likely have to pay an early withdrawal fee.

One way to avoid this is to get a current account with a high interest rate as we mentioned above.

Today, the best returns on savings are from Lifetime and Help to Buy ISAs where the government pays you a 25% bonus on your funds. The Help to Buy ISA pays this on withdrawal, whereas the Lifetime ISA pays in the bonus annually.

3. Use a cashback or rewards credit card

If you are going to spend on a credit card anyway (which you may need to do to build up your credit history), you might as well get one that gives you cash bonuses to do so.

There are a few cards out there that offer cashback or that operate reward schemes that could give you discounts in certain stores or earn you air miles.

However, always approach credit cards with caution – they are a debt product after all. If you do not think you will be able to pay it back in full every month, your interest repayments will very quickly outpace any cashback or rewards.

4. Buy via cashback websites

Cashback websites are essentially third party portals that you visit before clicking through to a website from which you were already going to buy something.

Using the cashback site’s link rewards them with money, some of which they pass on to you. How much you could get is usually shown as a percentage of the total amount you spend, but you are not always guaranteed to get that amount.

Like with a cashback credit card, only use a cashback site if you were planning to spend that money anyway – that way, you really could be getting something for nothing.

5. Try out robo-investing

Robo-investing is one of the slightly riskier ways to make a passive income, especially as you cannot specify where your funds get invested.

Unlike with traditional savings accounts where your money just sits there earning (or not earning much) interest, here it gets invested so you could reap bigger financial rewards. Remember, you could also experience a loss, so proceed with caution.

Robo-investing, open banking apps like Moneybox round up your spending and invest the difference.

For example, if you bought something costing £2.80, Moneybox rounds it up to £3 and invests the spare 20p. You can pick from three levels of risk: cautious, balanced, or adventurous.

The idea is, the amounts are so nominal you do not notice them not being there – it’s like putting your spare change in a piggy bank rather than having it jangle around in your pocket.

However, if you are someone who likes to keep an eye on every penny, this may not be the best way for you to earn a passive income.

6. Rent out a room (or parking space)

Buying and then renting out an entire property is a good way to earn a passive income, but it’s an expensive one and requires a lot of work.

For starters, you’ll have to pay an extra 3% in stamp duty (if it’s your second home, otherwise you pay the normal stamp duty rates), need a 25% deposit and – if you’ve already exceeded the tax-free income threshold (£12,500 in 2019/2020) – you’ll have to pay income tax on any earnings.

However, if you have a spare room in your current property or have an empty parking space in an area where parking is an absolute premium, you can rent it out.

Again, this is something you will need to report to the tax man, but if you are not using the space, it could be a great way to earn passive income.

7. Invest with peer-to-peer lending

Peer-to-peer (P2P) lending consists of a personal loan made between you and a borrower, facilitated through a third-party intermediary such as Zopa or Funding Circle.

As a lender, you earn income via interest payments made on the loans. But because the loan is unsecured, you face the risk of the borrower defaulting on payments.

To minimise that risk, you should do two things:

• Diversify your lending portfolio by investing smaller amounts over multiple loans
• Analyse the historical data on the borrowers to make informed picks

It takes time to master the metrics of P2P lending, so it’s not entirely passive and because you’re investing in multiple loans, you’ll need to pay close attention to payments received.

Whatever you make in interest should be reinvested if you want to build income.

8. Purchase dividend-yielding stocks

A dividend is a sum of money paid to shareholders out of a company’s profits. Shareholders in companies with dividend-yielding stocks receive payments at regular intervals from the company.

Since the income from the stocks is not related to any activity other than the initial financial investment, owning dividend-yielding stocks can be one of the most passive forms of making money.

The tricky part is choosing the right stocks. To try and minimise loss, thoroughly investigate the company you’re thinking of investing in. Do not rush into anything!

If you are unsure of what to do, it might be worth speaking to a financial advisor. They will explain the risks meaning you can make an informed decision about the best course of action.

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Last updated: 18 April, 2019

What happens to bank accounts after death?

Dealing with the death of a loved one is always going to be hard. Here we explain what happens to their bank accounts and what steps you need to take to get their financial affairs in order.

When someone dies, it is illegal to access their bank accounts unless you are a joint account holder on that particular account.

How to manage the finances of a deceased person

Aside from arranging the funeral, there are a number of steps you need to take before you can deal with the deceased’s financial affairs:

1. Register the death
2. Apply for probate
3. Remember inheritance tax!
4. Contact banks, utility companies and insurers

1. Register the death

When someone dies, you should register the death within five days.

This is the only way to get a death certificate which you must have in order to access bank accounts of the person who died.

2. Apply for probate

If the deceased left a will, they should have named an executor or administrator who will be in charge of handling the estate – that’s property, savings and belongings.

Once the executor has the original copies of the will and the death certificate (no photocopies allowed), they can apply for probate – the legal right to deal with the deceased’s estate.

If someone dies without a will, the application process is the same, but you’ll get ‘letters of administration’ rather than a ‘grant of probate’.

3. Remember inheritance tax

You’ll need to estimate the value of the estate and report your findings to HMRC to determine whether or not inheritance tax (IHT) is owed.

IHT won’t be charged if the inheritance is left to a spouse, civil partner, charity, or amateur sports club – otherwise, IHT will apply on any estates valued at over £325,000.

For the 2019/2020 tax year, the minimum tax-free threshold increases to £475,000 if the estate was left to children or grandchildren, including step and adopted children.

It is usually the estate – not you as the executor and/or inheritor – who pays inheritance tax, which is due six months after the death.

4. Contact banks, utility companies and insurers

Now you have the official will, death certificate and grant of probate (or letters of administration if there was no will), you can inform any banks, building societies, utility companies and insurers of the death.

Current and savings accounts

Bank accounts remain open until all the money is retrieved and the account formally closed. However, direct debits and standing orders will be cancelled.

Remember, it is illegal to withdraw money from an open account of someone who has died (unless you are the other person named on a joint account) before you have informed the bank of the death and been granted probate. This is the case even if you need to access some of the money to pay for the funeral.

As the executor, it is down to you withdraw any money and distribute it to the beneficiaries according to the will. A solicitor will be able to help you with the process.

If someone died without leaving a will, rules of intestacy apply.

There is, of course, the real possibility you do not know the details of all the deceased’s bank accounts or that some details have been lost. In that case, there are online tools that can help you discover lost accounts.

Debts

Debts such as mortgages, loans or credit cards are not passed on to the inheritors, but must be paid off before the remainder of the estate is distributed as per the instructions laid out in the will.

If you are unsure of what or how much money is owed, you’ll need to place a notice in The Gazette – the official public record of deceased estates. If you fail to do this and a creditor later comes forward with a claim against the estate, you might personally be liable for the unidentified debt.

Two months and one day after the notice is published and provided no other creditors have come forward, you can distribute the remaining estate amongst the beneficiaries.

Any debts taken out in a joint name become the sole responsibility of the survivor when one of you dies.

Insurance companies

Any open insurance policies need to be cancelled – remember, unless a claim is made, insurance companies do not pay out, so you will not recoup any payments the deceased made as part of their policies.

However, if they had any kind of life insurance (including mortgage life insurance and PPI) you can make a claim and the policies end.

Pensions

If the deceased was receiving their State Pension before they died, contact the Pension Service to stop the payments.

You may be able to claim their personal or workplace pensions (if they had any), but how much you’re entitled to largely depends on the type of pension they had.

Trusts

If a bank account is held in a lifetime trust, the successor trustee named in the trust document can present the death certificate and a copy of the trust to the bank to take it over.

How to get your affairs in order today

While much of the advice in this article is about how to manage someone else’s finances once they have died, there are several small things you can do for yourself or the person you are caring for now.

Special counsel at Foley & Lardner, Jamil G. Daoud, offers the following tips:

• Get hard copies of bank statements. Online statements have become the norm for current and savings accounts. Try to obtain detailed records by printing off online statements or requesting paper ones.
• Consolidate accounts. This might not be possible if the person has created a complicated web of savings accounts, but if there is a savings account here and a current account there, merging them could simplify matters.
• Add names to individual accounts. Determine exactly how the account is titled while the person is still alive. If you have power of attorney for someone, consider the following steps if your powers allow: Add one or more joint owners to the account; designate one or more payable-on-death beneficiaries for the account; transfer the account to the owner’s revocable trust.
• Pre-plan your funeral, if you can. One of the main reasons people need quick access to a person’s bank account after they have died is to cover the arrangements. Planning ahead alleviates that stress during an emotional time.

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Last updated: 18 April, 2019

How Brexit will affect your finances

In less than a year from now – on March 29, 2019 to be precise – the UK is scheduled to leave the European Union.

Although much of the political debate has been over the rights of citizens to move within Europe and the pros and cons of the Single Market, Brexit will also have an affect on our everyday finances.

Here we look at how this might affect savings, business and credit cards in the UK.

Interest rates

On May 10, the Bank of England announced it was not changing interest rates, which would stay at 0.5%, amid fears that the UK economy was too fragile to cope with a rate rise.

This is good news for borrowers, including those people with credit card debt and mortgages, but bad news for savers. Consumer price inflation is currently at 2.5%, which means that the real purchasing value of savings is being eroded.

Fitch, the ratings agency, said the household savings ratio (relative to income) was now 4.9%, a historical low. It forecasts that the UK base interest rate will rise gradually to reach 1.25% by the end of 2019.

“The impact of the Brexit referendum on real wages may be fading, but Brexit uncertainty creates risks of a bigger shock to growth and employment,” it says in a Special Report “Weakening UK Household Finances Pose Risks” published on May 8.

Foreign exchange rates

The value of your holiday pound, and the exchange rate you get when you use your credit card to spend abroad, are affected by foreign exchange (forex) fluctuations.

As of May 2018, sterling is worth just over 1.13 euros, compared with May 2016, when it was worth 1.3 euros, and July 2015 when it reached a ten-year peak of 1.44. Since July 2016 it has traded within a range of 1.08 to 1.12 and has recovered from its low of 1.07 soon after the Brexit result.

GBP vs. EUR for the last five years

Xe.com

When you make overseas purchases using your credit card or debit card, your provider applies a foreign currency conversion rate. This rate will be affected by the variations in the value of the pound, and any volatility in exchange rates.

If the Brexit talks look as though the UK is failing to secure a good deal, sterling may fall again. The Bank of England may have to raise interest rates to protect the pound.

Angus Dent, CEO of ArchOver, a peer to peer lender, said: “With Britain’s GDP growth at just 0.1%, it’s no surprise that the Bank of England has kept interest rates at 0.5%. [The] decision is yet another result of the uncertainty surrounding the UK’s financial health. And keeping rates so low means savers lose out once again.”

Credit card rates and rewards

While interest rates remain low, credit card companies are unlikely to increase their own interest rates. However, the era of rewards and benefits for holding a card seems to be at an end, says Andrew Hagger, founder of MoneyComms, the money information service.

“The only decent rewards you get now is if you use a card to buy items within a certain store – for example using a Tesco card to shop instore. If you use the Tesco card, or ones from M&S, John Lewis and Sainsbury’s outside their own shops, the rewards are slim. I don’t see any major changes in the pipeline.”

Credit card fees

Until the Brexit deal is finalised, the government in the UK has to comply with EU directives. After Brexit, all existing European law will be incorporated into UK law.

This includes a ban on credit and debit card surcharges and applies to all purchases made within the European Economic Area (EEA). It means airlines can’t add hidden charges for online bookings. There are unlikely to be any changes in the short term, as Teresa May has heralded this move as a victory for consumers.

Savings compensation

If you have savings with a bank or financial institution that goes bust, you’ll be compensated by the UK’s Financial Services Compensation Scheme (FSCS).

The compensation limit is £85,000, equivalent to the €100,000 deposit protection limit in the EU. Similar terms are likely to be included in UK law when the changeover happens. Read more about compensation limits on the FSCS website.

Interchange fees

The EU put in place a 0.3% cap on credit card interchange fees that was aimed at reducing the cost of card payments. The UK Cards Association estimated that almost £900 million in savings should be passed onto consumers.

Interchange is a fee paid by the retailer’s card acceptance provider to the consumer’s card issuer each time a card payment transaction occurs.

The cap on fees applies on most product types within the European Economic Area (EEA).

This will become law in the UK after Brexit, and is unlikely to change, says Andrew Hagger, of MoneyComms.

“All the EU laws will be incorporated into English law and then the government will look at which ones need to be changed. Interchange fees aren’t going to be a priority as there are many other issues they will need to look at, so I anticipate things staying much as they are for several years at least.”

Business and the economy

There are still some concerns about the health of the economy, which is why the Bank of England decided not to increase interest rates this time.

Brian Johnson, Insolvency Partner with the accountant HW Fisher, said that the economy had been affected by concerns over Brexit, and would continue to do so while the uncertainty remained.

“Immediately after the Referendum there was doom and gloom, and then the stockmarket recovered and the pound came down which made exports cheaper and interest rates stayed low,” he said. “That was a false dawn, with people saying that Brexit was not a problem.”

Behind the scenes, businesses were delaying decisions on investment and recruitment until the negotiations were concluded, he said, and there would be more insolvencies among businesses. This was not necessarily a bad thing, as poorly-run companies would be taken over by more efficient managers.

Now read: How to find the best current account

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Last updated: 28 January, 2019

Small-Business Loans

The recovering economic environment has meant that small businesses have had to be more creative when looking for loans.

However, companies with sound business strategies still can borrow. Options include loans from traditional banks and institutions affiliated with the Small Business Administration, as well as financing from Internet-based lenders.

“For creditworthy, high-scoring small businesses, there is money available,” says George Cloutier, CEO of American Management Services, a consultant to small businesses.

Bank loans

The best place to get a small-business loan is still a bank, says Cloutier. Banks typically offer the lowest interest rates and many have established reputations as trustworthy lenders.

RATE SEARCH: Compare business credit card rates.

“Many small businesses try three or four banks and then stop looking,” Cloutier says. A more persistent approach has better odds of success.

Calculate business loan payment

Want to calculate your small-business loan payment? Go to Bankrate’s loan and amortization calculator.

“Take out the phone book, target 10 banks and work through that list,” he says.

That strategy worked for Michael McKean. He is founder of The Knowland Group, a company that helps hotels fill up their meeting space.

A few years ago, as the success of The Knowland Group grew, McKean began searching for a bank that would give the growing company expanded access to credit.

“We talked to every bank in our area, at least a dozen,” McKean says. “Many came back with proposals, but the terms were very onerous. Or sometimes they shifted terms.”

Finally, M&T Bank came through.

“They just wanted to get our business,” McKean says.

McKean says his company did not approach M&T any differently than it had approached the other banks. It was just a matter of being persistent until the right deal came along, he says.

“We did everything right, approaching the right person at each bank,” he says. “We’re a profitable business. I think it was just the … credit crunch that prevented us from getting a loan.”

Cloutier says the key to success with banks is to show past profitability, and to describe a well thought-out plan for future profits.

“If you aren’t making a profit now, you must be able to tell the bank how you will change that in the short term, or you really won’t be able to get a loan,” he says.

He also recommends that businesses start small in their loan requests.

“If you need money for four trucks, ask for two,” Cloutier says. “The bigger the loan request, the harder it is to get it approved.”

SBA loans

Another way to find a bank loan is through the Small Business Administration, or SBA. The SBA can direct you to banks that offer loans guaranteed by the agency. This way, you’ll have the advantage of approaching banks specifically interested in lending to small businesses.

Interested businesses should contact the SBA office nearest to them, which can be found on the agency’s website. Jeanne Hulit, the SBA’s acting administrator, urges businesses to seek a bank that is an experienced SBA lender.

Banks granting SBA loans place increased emphasis on business plans, cash flow and profit forecasts in deciding whether to lend, she says. The SBA also can refer businesses to free counseling centers to improve their performance.

Online opportunities

Another source for loans is the Internet. There are several sites where businesses can seek alternative lenders, such as individuals and small companies.

Interest rates are generally a little higher than what a bank will charge, but it’s much less than what you’ll have to pay on many credit cards.

Look around at different sites, some may charge a one-time fee to list your business, while others are free to list but might have fees reflected in loan rates.

If you’re going to list your company on one of these sites, describe your business in clear and concise language.

Lastly, make sure to investigate the company you are looking to post your business on. These kinds of companies were successful in 2008 and during the recession, but times have changed. Many have since gone out of business. Before paying for anything, make sure the company is legit.

Which Type Of CD Is Best For You?

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The traditional certificate of deposit account remains the most popular type of CD. However, it’s far from the only option. Financial institutions offer a variety of non-traditional CD products. These specialized CDs can: give savers more flexibility to benefit from rising rates, provide early access to their funds or offer better-than-average rates of return. If you’re willing to sacrifice some yield or tolerate some additional risk, you might find a CD better suited to meet your financial needs.

But first, what is a CD account?

A certificate of deposit is a time deposit account. A bank agrees to pay interest at a certain rate if savers deposit their cash for a set term, or period of time.

11 types of CD accounts

1. Traditional CD

With a traditional CD, you deposit a fixed amount of money for a specific term and receive a fixed interest rate. You have the option of cashing out at the end of the term or rolling over the CD for another term. Most institutions don’t allow you to add additional funds before your traditional CD matures.

Penalties for early withdrawal can be quite stiff and will cause you to lose interest, and possibly principal. Federal regulation — Regulation D, specifically — sets only the minimum early withdrawal penalty for traditional CDs. There is no law preventing an institution from enacting tougher penalties, but the institution must disclose those fees when the account is opened.

Before you pick a CD, it’s important to calculate how much interest you could earn by the end of your term.

2. Bump-up CD

A bump-up CD helps you benefit from a rising-rate environment. Suppose you buy a two-year CD at a given rate, and six months into the term the bank offers an additional quarter-point on the same investment.

A bump-up CD gives you the option of telling the bank you want to get the higher rate for the remainder of the term. Institutions that offer this CD option usually allow only one bump-up per term.

The drawback is you may get a lower initial rate on a bump-up CD than on a traditional CD. The longer it takes interest rates to rise, the longer it will take to make up for the earlier, lower-rate portion of the term.

Be sure you have realistic expectations about the interest-rate environment before buying a bump-up CD. See how bump-up CD deals stack up against traditional CD rates.

3. Step-up CDs

In a rising-rate environment, you might also want to consider a financial institution that offers a step-up CD.

It’s not uncommon to see a step-up CD and a bump-up CD lumped together. Both of them will help you move up into a higher yield. However, they are different products. Rather than requiring you to ask the bank for a higher rate as bump-up CDs do, step-up CDs will automatically increase their rates throughout their terms at certain intervals.

They are not too common, however. Moreover, there is a big caveat: There is no guarantee that you would end up better off than you would have if you had parked your money in a traditional CD. The blended APY could be less than you would make with a traditional CD. As such, you’ll want to evaluate the starting APY as well as how much the rate is increasing before making a decision.

4. Liquid CD

Liquid CDs, or no-penalty CDs, offer investors the opportunity to withdraw their money without incurring a penalty. However, these types of CDs may come with strict withdrawal limits and large minimum investment requirements.

You can generally expect the interest rate on a liquid CD to be higher than that of a savings or money market deposit. But it’s usually lower than the rate on a traditional CD of the same term. You’ll have to weigh the convenience of liquidity against whatever return you’re sacrificing.

A key consideration when purchasing a liquid CD is how soon you can make a withdrawal after opening the account. Most banks require that the money stay in the account for at least seven days before it can be withdrawn without penalty, but banks can set the first penalty-free withdrawal for any time period. It’s important to read the fine print before picking up a liquid CD.

5. Zero-coupon CD

These CDs are similar to zero-coupon bonds. As with the bond, you buy the CD at a deep discount to its par value (or the amount you’ll receive when the CD matures).

“Coupon” refers to a periodic interest payment. “Zero-coupon” means there are no interest payments.

So, you might buy a 12-year, $100,000 CD for $50,000, and you wouldn’t receive any interest payments over the course of the term. You’d receive the $100,000 face value when the CD matures.

One drawback is that zero-coupon CDs are usually long-term investments, and you take on considerable interest-rate risk. If interest rates rise during the 10-year term in question, you’ll be on the losing end of that deal.

Another potential problem is that you’re credited with phantom income each year. No money is being put in your pocket, but you’ll have to pay Uncle Sam on the earnings being accrued.

In our example, you’d earn $3,000 during the first year and would owe tax on the money, though you haven’t actually received it. Each year, you’ll have a higher base than the year before — and a bigger tax bill. Make sure you have room in your budget to cover the taxes.

6. Callable CD

With a callable CD, you could get a higher yield than with traditional CDs but with a risk: the bank that issues the CD can “call” it away from you after your call-protection period expires, and before the CD matures. For instance, if you buy a five-year CD with a six-month call-protection period, the institution could call it back after the first six months.

Just as with the zero-coupon CD, the bank is shifting interest-rate risk on to your shoulders. If it issues a five-year CD at 3 percent and six months later rates drop by a full percent, the bank will drop its rate as well. It’ll now be paying 2 percent on the five-year CD you originally got at 3 percent.

The bank can call, or take back, your CD and reissue it at the lower 2 percent. You’ll receive your full principal and interest earned. But you’re stuck reinvesting your money at lower rates.

Usually, banks pay a premium for you taking on the risk that the CD may be called. They may pay investors a quarter- or half-percent more on a callable CD than they would on a CD without the call feature.

7. Brokered CD

A brokered CD is simply a certificate of deposit sold through a brokerage firm. To qualify for one, you’ll need a brokerage account. Some banks use brokers as sales representatives to find investors willing to purchase the banks’ CDs.

Buying CDs through a brokerage can be convenient. There’s no need to open accounts at a variety of banks just to get the best CD yields. Brokered CDs may pay higher rates than CDs from your local bank because banks using brokered CDs compete in a national marketplace. But that’s not always the case.

Brokered CDs are more liquid than bank CDs because they can be traded like bonds on the secondary market. But there is no guarantee you won’t take a loss. The only way to guarantee getting your full principal and interest is to hold the CD until maturity.

Don’t assume all brokered CDs are backed by the Federal Deposit Insurance Corp. It’s up to you to do your due diligence and look for that FDIC seal on the broker’s website. You should also watch out for brokered CDs that have call options. And before you invest, check on fees and early withdrawal policies.

8. High-yield CD

Banks compete for deposits by offering better-than-average rates. High-yield CD accounts may offer two or three times the national average on a given term. These are generally traditional CD accounts that pay very generous returns. Bankrate offers the best route for finding the highest rates in the nation.

Bankrate surveys local and national institutions to find banks offering the highest yields on CDs. All accounts are directly offered to the consumer by the institution.

Take time to compare the best CD rates. Then calculate your potential earnings.

9. Jumbo CD

Just as its name implies, a jumbo CD requires a larger deposit than a traditional CD. To get one, you would typically need to make a minimum deposit of $100,000. In some instances, that deposit threshold will be somewhat lower.

While jumbo CDs could pay more than a traditional CD, they might not. A five-year jumbo CD on average pays 1.55 percent APY, while a 5-year CD rate pays 1.49 percent as of late January, according to Bankrate’s national survey of banks and thrifts.

In putting tens of thousands of dollars into a jumbo CD, there’s a risk of whether the account will keep up with the inflation rate. Also don’t forget to consider your tax bite: The interest you earn will be taxed as ordinary income.

10. IRA CD

Individual retirement accounts hold investments. IRA CDs are IRAs where you invest in CDs.

IRA CDs may appeal to the risk-averse who are preparing to pad their retirement savings with guaranteed returns – you’ll know how much you’ll make over the product’s term so long as you keep the CD until its maturity. You will also have protection of up to $250,000 from the government if you purchase IRA CDs from an FDIC-insured institution. Translation: If the bank goes bust, your money won’t.

The trade-off is that you won’t make high returns on these investments. While they can help you diversify your portfolio, IRA CDs are not generally viewed as smart retirement strategies for younger investors, who can take on more risk.

Just like with the other CD types, make sure you shop around for the best yields. To effectively use an IRA CD, fund one with money you won’t need until age 59 1/2, so you don’t have to pay a tax on early distributions.

11. Add-on CD

Most CDs let you make only an initial deposit. But add-on CDs let you make multiple deposits into the account during the CD’s term. However, how many deposits you can make into an add-on CDs varies. So, make sure you read the fine print.

These accounts are worth considering if you are saving for a goal.

Make sure you look around to find the best rates. And reminder, try not to lock up your money for too long at times when interest rates are expected to increase.