Passive Family Income » high yield certificate of deposit

5 Tips for Investing in a High Yield Certificate of Deposit

John S. — Fri, 27 Aug 2010 11:13:56 +0000

Investing in a high yield certificate of deposit (CD) can be one of the safest investments you can make. Most CD’s offer competitive interest rates compared to savings and checking accounts, making them an attractive short term investment. It is hard to go wrong stashing a portion of your savings away in these types of investments. There are however some considerations you should make before investing your money.

Here are a few tips that you should consider before investing your money into a certificate of deposit account .

5 Tips for Investing in a High Yield Certificate of Deposit

FDIC Insured – Make absolute sure that any high yield certificate of deposit you may decided to purchase is backed by the Federal Insurance Deposit Corporation (FDIC). If you are investing your hard earned money into an uninsured CD, then you might as well be investing the money in the stock market instead.
Early Withdrawal – Be sure to check if your CD has any early withdrawal penalty. If it does, then you should be aware that if you need access to that money in an emergency, you will be required to pay a fee. Since CD’s are not usually as liquid as a high yield savings account, you need to weigh all your options before investing your money.
Fixed Interest Rate – Are you purchasing a fixed rate certificate of deposit or one that comes with a variable rate? Traditional CD’s come with a fixed interest rate that you can rely on. However, not all deposits are created equal and some come with an adjustable rate. Make absolute sure that you know which type of investment you are getting. You don’t want to be locked into a long term certificate of deposit only to find out that the interest rate is adjusting downward.
Maturity and Call Dates – Do you know the difference between the maturity and call dates on your high yield certificate of deposit? Most people don’t look at any call date information when investing and barely review the maturity date. The maturity date on a CD is the date in which your investment fully matures and the funds are returned to you or reinvested back into a new deposit. The call date refers to the date in which the bank can “call back” the deposit from you. You will still receive your initial deposit along with the interest earned up to that date.
CD Laddering – If you have a few thousands dollars to invest, then you should strongly consider building a CD ladder. Creating a portfolio of high yield certificate of deposits will provide a diversified and competitive investment. Traditional CD ladders normally spread across 5 different deposit accounts with expiration dates of equal distance apart. This insures that you are getting the best possible interest rates spread across your investments.

Passive Income Tip

Consider adding a high yield certificate of deposit to your passive income portfolio. Once you have completed your initial review of the investment, there is little action required on your part until the CD matures or is called back by the bank. Another option is to take the money generated from other income streams and use it to fund new CD accounts to setup a stable and safe recurring income stream.

Originally posted 2009-08-26 06:56:18. Republished by Blog Post Promoter

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How to Create a Peer Lending Passive Income Stream

John S. — Fri, 11 Dec 2009 16:21:27 +0000

Peer lending is a form of portfolio income that can earn you interest on your investments. It is a bit different than other high yield investments such as certificate of deposits, dividend stocks, and savings accounts. Lending money to your peers, also known as micro loans, can prove to be a viable passive income stream provided you understand the risks and rewards.

What is Peer Lending?

This alternative form of lending brings together individual investors and borrowers through a common platform (i.e. Lending Club). Borrowers looking to consolidate credit or find other financing submit a loan request for the amount they are looking to get financed. Lenders then bid on funding a small portion of the entire loan at a particular rate. Think of it kinda like eBay for lending.

While there are many other details of peer lending not discussed here, the basic fundamentals bring together those looking for capital with investors. The investor gets a higher rate than traditional investments, the borrower gets the funding they need, and the peer lending institution takes a percentage off the top from the transactions.

So what are the pros and cons of peer lending?

Why Peer Lending?

As an investor or someone looking to build passive income, peer lending has several advantages and disadvantages. Before you decide to start investing money into micro loans, be sure to know the risks and rewards that accompany this income opportunity.

Advantages of Peer Lending

There are plenty of reasons why peer lending can be an attractive investment. Here are a few advantages of why peer lending can be a legitimate passive income opportunity.

Interest Rate – The rate of return on funding a micro loan far exceeds that of a certificate of deposit or high yield savings account. Depending on your risk level, you could legitimately earn anywhere from 8% – 14% return on your investment. While there are some associated risks when investing in micro loans, a double digit return is very hard to ignore.
Diversification – People who invest in micro loans have the ability to choose the loans they bid on in order to create a diversified portfolio. That means you can structure the micro loans you fund based on the risk level and rate of return you are looking for. This gives the investor a lot of control in the portfolio they choose to create.
Help Others – Peer lending is a nice investment option as it allows you to help others out who may not be eligible for a traditional loan. Banks have tightened their lending standards, so those no longer eligible for funding can turn to the peer lending industry to get capital. There are even some peer loan institutions that offer loans for people in third world countries that would have no other options available to them.

Disadvantages of Peer Lending

Just as there are reasons why peer lending can work, there are plenty of risks and disadvantages to setting up this type of passive income stream.

Not Insured – The money that you invest into funding micro loans is not FDIC insured. This means that there is no guarantee that you will ever see your investment dollars again once you fund a portion of a micro loan. If the borrower decides to declare bankruptcy and is delinquent in paying off the loan, there is not much you can do about it.
Limited Availability – In the US, because of various state laws and regulations, peer lending is not available to everyone. Before you get set to start lending out money to your peers, make sure your state will allow these investments.
Requires Ongoing Maintenance – When comparing investments that earn interest, peer lending is one that is more time consuming than others. Building a solid micro loan portfolio can require ongoing maintenance which makes it less passive than a high yield savings account or certificate of deposit.

Peer Lending Resources

While there are several peer lending companies popping up all over the place, there are two that seem to be the most popular. Here are two options that you can use to begin building your peer lending passive income stream.

Prosper
Lending Club

Lending Club is offering a great deal for new investors who sign up with them. For any new lender who opens an account, they will receive $64.62! Why $64.62? Because banks made $6.462 billion dollars last quarter and Lending Club is trying to promote peer lending as an alternative to traditional lending. If you are interested in signing up, contact me and I will send you an invitation through email. Please note that I do not receive any commissions for this deal.

Final Thoughts

I started a peer lending income stream several months ago. Over that time I saw a return on my investment push into double digits only to see the recession hit and my portfolio of loans go down with it. Since the time the economy started to falter, I have had more micro loans become charged-off (go into collections) instead of paid off. As a result, I have actually lost money on this investment.

Do I think that peer lending is still a viable option? Absolutely. Provided you diversify your micro loans and make peer lending only a small portion of your passive income portfolio, I believe it can be a great opportunity.

Do I still participate in peer lending? Unfortunately, the state that I live in no longer allows me to fund any new loans. As a result, I only have investments in previous loans and cannot add any additional money to this income stream.

How successful have you been with setting up a peer lending income stream?

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3 Types of Passive Income that Require an Initial Investment

John S. — Tue, 13 Oct 2009 12:55:35 +0000

To those looking to build alternative income streams on a budget, there is normally one particular task that comes to my mind – writing. Most people starting out looking to save money decide to take advantage of free passive income opportunities that are often found online. This is how I started out well over a year ago in an effort to bring in more cash while limiting my expenses.

The common theme around the majority of these “free” opportunities is writing. Whether you become an eHow author, start affiliate marketing campaigns on EzineArticles, or create content on HubPages – there are no costs to you. What is required of you is your time that is spent researching, writing, editing, and publishing online content.

Did you know that there are actually a ton of other passive income opportunities available that don’t require any writing, editing, or publishing of online content? Check out a few of the non-writing income streams that I have dabbled in over the past several months.

3 Non-Writing Passive Income Streams

Peer to Peer Lending – While I haven’t had a great track record, peer to peer lending is a viable passive income opportunity. You will need some cash (usually $50 minimum) in order to get started. There are opportunities to earn well over 7% on your investment, but beware of the risks involved before you get started.
Dividend Paying Stocks – Investing in dividend paying stocks can create portfolio income as another option. This type of income in many cases has several “passive” traits. As I continue to earn more cash from my other passive income streams, I hope to build a solid dividend stock portfolio.
Certificate of Deposit – Investing in a high yield certificate of deposit is one of the safest and easiest passive income streams around. You will need to set aside some cash (normally $1,000 to start) to grow this opportunity. There are very few risks associated with investing in certificate of deposits, other than tying your money up for a set period of time. The return on investment is not as good as peer to peer lending, but the risks are much lower which is a nice trade off.

Evolving Your Passive Income

If you are like me and are actively creating FREE passive income streams, then it can be hard to think ahead. It is very easy to get wrapped up in your day to day activities of constantly churning out online content. At some point however, it is important to begin reinvesting your passive income earnings back into new opportunities.

The 3 examples I mentioned earlier are just a few of these opportunities to reinvest your cash. It is important to not only diversify your online passive income streams, but to also evolve into investing in other opportunities. Do yourself a favor and plan ahead so that you can continue to accelerate your passive income earnings through non-writing opportunities!

What other forms of non-writing passive income are you currently working on?

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