30 Jul Investments Worth Making With $50 or Less

Although investing a small amount of money may not feel like a worthwhile activity, even a minuscule investment can turn into a huge sum of money with enough time. Interest rates are percentages that you receive as payment for investing a certain amount of money. If you invested $100 at a 5% interest rate, you would receive $5 the first year from that investment. Compound interest means that every time an investment makes money, that interest also starts earning interest and yielding returns. Over time, interest compounding leads to exponential growth of your initial investment.

Savings Accounts

One of the simplest ways to start investing is to open a savings account. Although you may keep most of your money in a checking account, chances are good that this money is earning very little interest. Keep enough money in your checking account to pay your bills for at least a few months, but consider taking that leftover cash and moving it into a savings account with a higher interest rate. Many of these accounts are Federal Deposit Insurance Corporation (FDIC) insured, which means that even if that banking institution fails, you can get your money back from the United States government! This makes FDIC-insured savings accounts some of the safest investments around. In addition to providing much better interest rates than checking accounts, savings accounts are very flexible, allowing you to transfer cash back to your checking account to pay off bills at any time. Depending on the flexibility you need and interest rates offered, different savings accounts may be more or less appropriate for you; one place to research different savings accounts is Nerd Wallet.

Certificates of Deposit (CDs)

Certificates of Deposit (CDs) are very similar to savings accounts except that instead of a variable interest rate dictated by market conditions and the bank, you and a financial institution agree to a specific interest rate for a specific amount of time. Because the bank knows they will have your money for a specified amount of time, they can invest your funds differently than if you opened a savings account with them; this knowledge is worth them offering you a better interest rate, which generally increases with the amount of time you agree to store your money with them. Although CDs offer higher rates than savings accounts, it’s important to be certain that you will not need to access your money within the agreed time limit: if you need to withdraw your money early, you will pay stiff fines or penalties that will negate the higher interest rate you received.

Exchange Traded Funds (ETFs)

The average return of the stock market is estimated to be somewhere between 7-10%, which is significantly higher than the rates currently offered in savings accounts or CDs. Although there is inherent risk in purchasing stocks, there are ways to minimize this risk while also gaining access to higher returns. Investing in the stock market can be a difficult task with a small amount of money, but exchange traded funds (ETFs) are making it much easier. ETFs are bundles of multiple stocks that track different indices, such as the Dow Jones Industrial Average or the Standard & Poor’s 500; investors can purchase a share of an ETF instead of buying each individual stock in these indices. This is important because in order to buy stocks, most financial institutions charge a brokerage fee; especially when investing small amounts of money, a significant portion of your investment could end up going to pay these fees instead of into your investment. Many ETFs are now available for purchase without paying any brokerage fee. ETFs do charge small percentages for investing your funds in different stocks, but these usually are around 0.1% which is significantly lower than traditional mutual funds. Purchasing shares of an ETF also provides investors with a diversity of stock holdings, minimizing the risk of owning any one specific stock. If one stock in an ETF goes bankrupt, the ETF will still have value, whereas if you own stock in a company that goes bankrupt, you could lose your entire investment.

Bond ETFs

In addition to investing in the stock market, there are bond ETFs which own bonds instead of stocks. These can be government issued bonds which are very safe investments but have relatively low yields, or they can be corporate issued bonds that pay higher interest rates but may lose value if the offering-company has financial trouble or goes bankrupt.