© CL STOCK / Shutterstock.com
CDs offer fixed income up to maturity, and some banks let you lock in high interest rates for multiple years. However, there’s one major catch with CDs. You typically cannot access your money until the CD matures. Technically, you can withdraw from a CD, but you will then incur a penalty fee that will wipe out all of the interest you gained.
If you ever invest in a CD, you must treat it as money that you cannot touch until maturity. Most investors do not like that lack of flexibility, and that’s why more investors are turning to high-yield ETFs. These funds have higher rates than most CDs and don’t lock up your money at all. If an emergency strikes, you can sell your ETF shares if necessary without incurring a penalty. You also get solid cash flow from any of these funds.
Fidelity Total Bond ETF
The Fidelity Total Bond ETF (NYSEARCA:FBND) is a low-volatility fund that prioritizes high-rated bonds. It has a 4.48% SEC yield, which tops almost every CD, to go along with a reasonable 0.36% expense ratio.
Almost 80% of its total assets are in A-rated bonds or higher, with 67% of its bonds having an AAA grade. None of the fund’s bonds has a rating below B. This setup means the Fidelity Total Bond ETF only invests in the most reliable corporations and governments. Notably, it does not hold any municipal bonds, preferring to place a strong focus on government and corporate bonds.
All of its top 10 holdings are U.S. Treasury notes with various APYs and maturity dates. It has more than 4,300 bond holdings.
JPMorgan Equity Premium Income ETF
The JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI) uses the S&P 500 as a benchmark but isn’t a passive fund by any stretch. The fund has a 6.97% SEC yield because it sells S&P 500 call options to generate extra income. Those proceeds translate into higher cash distributions for investors.
The downside with JEPI is that its distributions are treated as ordinary income, which translates into higher tax rates. However, it isn’t anything different from the interest you would receive from a CD.
This fund has a 0.35% expense ratio, which isn’t bad for an actively managed fund. JEPI has a 172% turnover rate, which means almost its entire portfolio is replaced twice within one year. The tech sector is represented the most in JEPI right now, but this trend is likely to continue since the largest S&P 500 companies are in the tech industry.
Schwab U.S. Dividend Equity ETF
The Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) offers a 3.62% SEC yield and a low 0.06% expense ratio. It’s the only pick on this list that prioritizes dividend stocks, which means lower tax rates for any cash distributions.
The fund is loaded with large-cap blue-chip companies. Large-cap holdings make up more than half of the entire portfolio, with value stocks accounting for almost 90% of total assets. The focus on value stocks minimizes volatility while investors get to enjoy steady cash flow growth over time.
Energy, consumer staples, and healthcare stocks are heavily represented in this fund. Those three sectors make up more than half of SCHD’s total assets.