Posted on 26 September 2011.
High Interest Rate Investments in a Low Interest Environment
Due to the low interest environment that currently exists, investors need to explore alternative investment options to find High Interest Rate Investments. Traditional interest bearing investments such as federal government bonds, money market accounts, and savings accounts currently provide interest rates that are at multi-decade lows, much lower than investors are accustomed to earning from interest bearing investments. For investors who are willing to think outside of the box, there are a number of alternative High Interest Rate Investments that are relatively safe when broadly based investments are made that pay extraordinarily high interest rates in relation to the current low interest rate environment.
High Interest Rate Investments Options
The following is a list of High Interest Rate Investments that are currently available for investors seeking higher interest rates than those that are being paid by traditional interest bearing investments. To protect one’s investment capital, it is a good idea to invest in these High Interest Rate Investments via mutual funds or Exchange Traded Funds (ETFs) to spread out investment risk over a number of securities.
- Junk Bond Funds – Junk Bonds carry much higher yields than more highly rated investment grade bonds, due to their higher risk of default. This risk of default can be mitigated by buying a managed Junk Bond Fund. One of the better known Junk Bond Funds is the Barclays Capital High Yield Bond (Symbol: JNK), which offers a 5.43% annual interest rate.
- Municipal Bonds Funds – Municipal Bonds, which are bonds that are sold by municipal, county, and state governments, offer interest rates up to 7%. These high interest rates are particularly appealing since depending on the type of Municipal Bond Funds purchased and where one lives, an investor may be able to earn tax free interest that is free of local, state, and federal income taxes.
- Preferred Stock Funds – Interest bearing preferred stocks are much less volatile than common stocks. The relative stability of preferred stocks and the fact that Preferred Stock Funds pay interest rates over 7%, make these stock funds attractive to investors looking to earn high interest on their investment capital. iShares S&P US Preferred Stock (Symbol: PFF) and PowerShares Financial Preferred (Symbol: PGF) are two options for investing in Preferred Stock Funds.
- Hybrid Preferred Stock / Bond Funds – Hybrid Preferred Stock / Bond Funds invest in fixed income markets in the United States through investments in preferred stocks, convertible debt securities, and convertible preferred securities with investment grade quality of BBB/Baa or better. The Nuveen Quality Preferred Income Fund 2 (Symbol: JPS ) is a Hybrid Preferred Stock / Bond Fund that offers a 8.50% annual interest rate.
- Emerging Market Sovereign Debt Funds – For investors who wish to earn high interest and want to diversify their holdings to countries outside of the United States, Emerging Market Sovereign Debt Funds are interest bearing investments worth considering. Emerging Market Sovereign Debt Funds invest in foreign government bonds, many of which are in emerging markets. PowerShares Emerging Markets Sovereign Debt (PCY) is an Emerging Market Sovereign Debt Fund that offers a 5.44% annual interest rate.
While it is currently impossible to earn high rates from traditional interest bearing investments, there are plenty of alternative High Interest Rate Investments that can provide the high interest rates that investors are accustomed to earning.