Keeping your money in a hidden jar or under the mattress may ensure you keep your money, but that's all it does. Most people would prefer to have their money make more money if possible. Interest is the reward for your balance, deposit or investment accrued after a period of time. There are a few ways to make money by interest, though they all carry their own risks and rewards.
Savings
By putting your money into interest-bearing accounts such as money market accounts, savings, and CDs (certificates of deposit), you can have your money safely make more money. However, the average savings account only offers an APY of around 0.7 percent. Money market accounts and CDs offer slightly higher rates but they are only a few tenths of a percent higher. Savings accounts with compound interest offer better a better return since they earn interest both on the principal and the interest accrued during that period.
Mutual Funds
Putting your money into investments can be lucrative, but it is often very risky. To curb this risk and increase your return on investment, mutual funds are professionally-managed portfolio options that mix stocks, bonds and securities to improve return stability. Investors receive interest on the bonds, dividends from stocks and capital gains on securities.
Lending
Banks make their money by lending out money. You can do the same thing by lending money through various organizations and causes. Some organizations are conglomerates that lend to various solid businesses to improve their operations. Others are charities that lend to entrepreneurs in developing nations at modest interest rates. Lending will make you money through paid interest on the loan while also contributing to business creation and expansion.
Considerations
When looking to make money through interest, you should evaluate your risk tolerance. If you do not want to risk losing your initial investment, conservative investments such as savings and money market accounts are better suited for you. Mutual funds would also be a viable but riskier choice as you may lose some of your investment, though historically the return on investment is favorable. Lending is much riskier, as borrowers may default on their loans and be unable to repay them, losing you not only your potential interest but the investment as well.
