The Securities and Exchange Commission notes that many Americans are looking to certificates of deposit (CDs) as a safe place to invest their money. It warns, however, that not all CDs carry the same risks or costs. Individual retirement accounts (IRAs) can also be considered a lower-risk place to invest money, but IRAs offer a wide selection of investment choices with various levels of safety. The good news is that CD and IRA products that have little or no risk do exist. But to find them, you have to be willing to shop around.

CDs

The safest way to invest money in a CD is to choose a bank that offers insurance from the Federal Deposit Insurance Corp., or FDIC. The FDIC insures deposits of up to $250,000 in any one bank. This means that if a bank fails, the FDIC will step in and return your money to you. If you have more than $250,000 to invest, spread it among several insured banks. Choose CDs that offer a fixed interest rate, and understand when interest is paid---monthly, quarterly, semi-annually or less frequently. Be sure to align the CD's maturity date with your withdrawal needs. If you plan to cash in your CD in five years, ensure the CD's maturity date is no longer than five years, or you may be charged an early withdrawal penalty.

IRAs

One way to reduce your risk with IRAs is to invest your funds in CDs. MoneyRates notes that while IRAs tend to be long-term investments, you have flexibility when selecting the CDs that make up your IRAs and can choose shorter- or longer-term CDs, whichever pays the highest return. Be sure that the CDs you select don't have unusual risk features, such as the right for the issuer to redeem or "call" the CD before its maturity in return for the higher interest rate. Another safe way to invest money with IRAs is to use government-backed financial instruments, such as Treasury bills or bonds. Treasury instruments are backed by the full faith and credit of the U.S. government. Choose the right bill or bond maturities to match your return requirements and maturity dates.

Risk and Return

Before you begin shopping for CDs or IRAs, gain an understanding of the effect that a product's risk has on its rate of return. Investors are rewarded for taking risk, and those rewards come in the form of higher returns. There's nothing wrong with avoiding risk with your finances, particularly if it helps you sleep at night, but be prepared to accept a lower rate of interest or income on your investments.

Source:

Securities and Exchange Commission: High-Yield CDs -- Protect Your Money By Checking the Fine Print

MoneyRates: IRA Certificates of Deposit -- Low Risk, Plus Reward

Treasury Direct: Treasury Securities and Programs

More Information:

CNN Money: Keeping Your IRA Safe