Certificates of Deposit
Certificates of deposit (CD) are one of the safest ways for seniors to invest. Bank certificates of deposit are fully insured by the FDIC, protecting seniors against loss of principal and interest even if the bank itself goes out of business. The rates on CDs vary along with interest rates, but seniors can get the most for their money by shopping around for the best deal. One strategy to consider is building a ladder of CDs by investing in a series of separate one-year, two-year, three-year, four-year and five-year CDs. That ladder of CDs provides a steady stream of income, and eventually the CDs can all renew at the higher five-year rate.
Seniors can also invest directly in Treasury Securities, including T-Bills, Treasury Bonds and Savings Bonds. These investments are backed by the United States government, making them one of the safest investments around. Seniors who fear inflation can invest in Treasury Inflation Protected Securities, or TIPS. These securities pay a base rate, plus the rate of inflation, providing an important level of purchasing power protection. Treasury securities can be purchased directly from the government (see Resources) or through banks, credit unions and other financial institutions.
GNMA bonds are mortgage backed securities, but unlike other such securities, these bonds are backed by the full faith and credit of the United States government. That makes them very safe investments for seniors and other investors who need a steady and reliable stream of income from their investments. Since they are bonds, the price of a GNMA mutual fund will move in tandem with interest rates. When interest rates rise, the share price of the typical GNMA bond fund will go down, and when rates fall the value of the fund will rise. This is not a concern for seniors who plan to keep the money invested and simply earn interest, but it can be an issue for seniors who need to withdraw the principal they have invested. The interest rates on GNMA funds tend to be a bit higher than comparable treasury bonds and CDs, making them a good choice for current income.