How Can I Get 5% Interest on My Savings?

Five percent is a high investment yield in a post-recession rate environment.

Following the financial crisis of 2007, interest rates for investors in the U.S. moved lower and stayed low. In May 2011, Bankrate was listing five-year certificates of deposit as yielding 2.5 percent, and the 10-year Treasury note paid less than 4 percent. To achieve a 5 percent yield in this rate environment, an investor must look at other investment products, which pay the higher rates but include price volatility and some risk of principal loss.

Step 1

Choose one or more of the types of investments which can pay a yield above 5 percent. These are bond / fixed income mutual funds, unit investment trusts — UITs — and master limited partnership exchange traded funds, or MLP ETFs. Bond funds provide easy investment and withdrawal terms. UITs give access to a fixed, diversified portfolio with a set termination date. MLP stocks pay a high rate of dividend yield, and an ETF holding MLP stocks will diversify the risk.

Step 2

Select specific investments in each category for further review. Unit investment trusts and load bond funds can be purchased through an investment advisor. No-load mutual funds do not have a sales charge, but require you to do your own research. Exchange-traded fund shares can be purchased through a discount stock broker.

Step 3

Review the past performance of the selected investments, focusing on the periods of time when values of the funds or trusts declined. All of these investment types move up and down in value, depending on market conditions. You should understand the worst-case scenario if you invest. Be realistic.

Step 4

Diversify your investments among several of the investment choices you have selected. These types of investment products have no guarantee or insurance, so dividing your savings between a number of choices provides an additional level of safety.

Tip

Of the types of investments listed, a UIT holding bonds will have the most stable values and a return of principal at a specified future date.

If your investment experience is limited in these types of investments, do not move all of you savings into funds or trusts at one time. Start with a portion of your savings.

Warning

If you are not comfortable putting the principal value of your savings at risk, earning 5 percent may not be worth the risk. It is important you understand the risks to your savings value before investing in any of the securities discussed here.

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