Savings accounts are safe because investors' deposits are guaranteed by the Federal Deposit Insurance Corporation (FDIC) for bank accounts or the National Credit Union Administration (NCUA) for credit union accounts. Deposit insurance covers $250,000 per depositor, per institution, per account ownership category, so most people don't have to worry about losing their deposits if their bank or credit union becomes insolvent.
Certificates of deposit (CDs) issued by banks and credit unions also carry deposit insurance. CDs require you to lock up your investment for several months to several years. CDs pay a slightly higher interest rate than savings accounts and, under typical market conditions, CDs with longer maturities pay interest at higher rates than CDs with shorter maturities. The catch is that if you want access to your money before the CD matures, you'll pay a penalty. The penalty varies depending on the issuing institution's policies, but is typically several months' worth of interest.
U.S. government securities, such as Treasury Notes, bills and bonds, have historically been considered extremely safe because the U.S. government has never defaulted on its debt. If you think the government will continue to make good on its debts, Treasury securities are similar to CDs in that they typically pay interest at higher rates than savings accounts do, depending on the security's duration. If you sell a security before it matures, you'll lose money, so consider your investing timeline carefully before you buy.
Mark Struthers, CFA, CFP®
Sona Financial, LLC, Minneapolis, MN
"Safe" is often a misused term. Most consider U.S. government treasuries as safe, because if held to maturity, they have a guaranteed return of principal. What is often missed is that inflation can erode the purchasing power of that income stream and/or principal. Also, if you buy open-end bond mutual funds, you cannot hold them to maturity and you cannot ensure the return of principal. Depending on your age and intention, if you have a low risk tolerance and are looking for low-cost, transparent options, then I-Bonds and Treasury Inflation-Protected Securities (TIPs) are great options. If you own them individually, they can be held to maturity and the government backs the return of principal. Plus, their values/payments are adjusted for inflation.