3 Higher-Paying Alternatives to Investing in CDs

Thanks to high interest rates, certificates of deposit (CDs) have been a popular investment this year. The top CDs listed here are currently offering rates of 4% to 5%. That's a solid return, especially if you're looking for a secure investment that won't lose money. With CDs, you're guaranteed a rate for the entire term.

But if you're looking for long-term growth potential, CDs aren't a good choice. There are much better investments that could earn you twice as much or more. Below, you'll find three options that tend to offer better long-term returns than CDs.

1. Index funds

An index fund is an easy way to invest in stocks. This type of investment vehicle aims to track the performance of a specific market index. For example, an S&P 500 index fund follows the S&P 500 index, which has 500 of the largest publicly traded U.S. companies. The S&P 500 has an average long-term return of about 10% per year, so index funds that track it are a popular choice with investors.

The nice thing about index funds is that they do the work for you. You don't need to worry about building an investment portfolio. You can get a diversified portfolio in as little as one investment. Index funds also have low fees, with some costing less than 0.1%!

If you're ready to start building wealth with index funds, you'll need a broker. Robinhood is widely considered a top option for beginners, as it has an easy-to-use platform and commission-free trading. WARNING SCL [brokerage slug=robinhood field=apply_url] does not generate a link. Anchor tag will not render in production.Click here to learn more and open an account today.

2. Real estate investment trusts

Investing in real estate sounds exciting, until you learn about all the time and money required. Flipping homes or managing rental properties is a full-time job, and you also need money upfront to get started.

Luckily, there's an easier option. Real estate investment trusts, or REITs for short, were designed so that anyone could invest in real estate. REITs own income-producing real estate, and they're bought and sold in shares on stock exchanges. They're a way to invest in real estate through online brokerage accounts like these, without large upfront costs or a significant time commitment.

REITs have historically delivered excellent returns. From 1972 to 2023, they had an average annual return of 12.7%, as measured by the FTSE Nareit All Equity REITs Index. That even tops the S&P 500.

3. Target-date funds

A target-date fund invests in stocks and bonds for you and is set up for a specific retirement year. For example, if you want to retire in 2050, you could invest in a 2050 target-date fund. When your retirement year is decades away, the target-date fund will invest heavily in stocks to maximize growth. As retirement gets closer, it will shift money to bonds for more stability.

The benefit of target-date funds is that you can take a set-it-and-forget-it approach. You don't need to worry about rebalancing your portfolio to make sure you have the right mix of stocks and bonds. All you need to do is choose a target-date fund for your retirement year and invest.

Target-date funds are a common option in retirement plans, including 401(k)s and top-rated individual retirement accounts (IRAs). You can also invest in them through standard brokerage accounts.

CDs can work well when you want reliable, stable growth for your savings. For long-term investing, they're not the best option, as you could build more wealth with index funds, REITs, or target-date funds.