3 Alternatives to Low-Yielding CDs

NEW YORK (MainStreet)—Certificates of Deposit--commonly known as "CDs"--aren't paying much these days. According to Bloomberg, a 1 year CD pays slightly over 0.5%; if you tie your money up for five years, don't expect more than a 1.26% return.

How can you make your money work harder for you? You could turn to the stock market, but there's risk, like the 25% drop in stocks that we saw at the end of 2008. For many, the risks of a stock-only portfolio are just too great. But there are alternatives out there in the bond market that retirees can use to get a passive income stream beyond today's low CD rates.

Individual Savings Bonds (iBonds)

iBonds, as they have come to be known, are simple and low-risk savings bonds that typically offer a low interest rate and a low risk of losing principal. In fact, the only way you can lose money on an iBond is if the United States government defaults on its debt. Because they are so low risk, the interest rate they offer is negligible: all bonds issued between May 1, 2013 and October 31, 2013 is 1.18%.

"These are not for 'investing' per se," says Marshal Kofler, deputy director of the U.S. Department of the Treasury Financial Management Service. Instead, savers can choose to buy iBonds as a way to save money for a fixed period of time. iBonds can be bought directly from the U.S. government without a broker, and they can even be purchased online.

Interest payments are taxable, and there is a penalty if you redeem an iBond if you do not hold it for five years or more. This penalty will equal the last three months of interest payments, which are forfeited in cases of early redemption.