Highlights

• Plan to hold on to any stocks for a period of three to eight years.
• Spread your risk among a couple of stocks and other investing alternatives.
• Bond funds are usually used by retirees seeking income.

It’s hard to make a good return on your money nowadays. With five-year certificates of deposit yielding less than 1.5 percent, they’re not even keeping up with inflation. Returns on money market accounts are even worse. Far from the days when you could earn 5 percent on your money in a risk-free account insured by the Federal Deposit Insurance Corp. you now have to get creative and take on some risk to earn a fair yield.

From dividend-paying stocks and peer-to-peer lending to paying down high-cost credit card debt, there is a variety of alternatives that can deliver better returns than a CD. However, they are not without risk, and financial advisers say the best option may be to use a couple of alternatives in combination to grow cash you won’t need for a few years.

Dividend-paying stocks

If you’re not a savvy investor, putting short-term cash in the stock market could be a very risky move. But if your only other choice is 1.5 percent in a CD, you might be willing to take a shot and risk some loss in principal, says Mari Adam, president of Adam Financial Associates Inc. in Boca Raton, Fla.

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There are many great household-name corporations paying 2 percent to 5 percent dividends. Solid blue-chip companies such as Verizon, ExxonMobil, and Proctor and Gamble pay quarterly dividends that are significantly higher than any CD rates. Many also have a decades-long history of raising dividends and relatively stable share prices.

Be forewarned that there’s a real risk you could lose principal. Buy a stock at $20 per share today, and it could be worth $15 per share six months from now. Kimberly Foss, president of Empyrion Wealth Management in Roseville, Calif. says because stocks can come with such risk, you have to ask yourself how much risk you’re willing to take. While that risk can be significant in the short term, it becomes lower in the long term; you should plan to hold on to any stocks for a period of three to eight years.

If the markets go down 10 percent in the short-term, are you going to be OK with that? Foss asks.

Many financial advisers recommend against picking individual stocks because it can be so risky. Adam says if you take this option, it’s best to spread your risk among a couple of stocks and other investing alternatives.

You don’t want to put all of your short- or midterm cash in just one stock or one alternative, Adam says.

Paying down high-cost debt

While it may seem counterintuitive to saving money, paying down high-cost debt is a good investment, considering today’s low CD rates.

Bill Hammer Jr. president of the Hammer Wealth Group in Melville, N.Y. says you are essentially earning a guaranteed rate of return when you pay down debt. Paying off $1,000 in credit card debt at 22 percent means you’ll save at least $220 in interest in the first year. It could be even more if you were to carry that debt for subsequent years. Compare that to putting that $1,000 in a CD for a year, where you’d earn $15.

Mortgages and a car note might be OK, but you should be paying down anything with a double-digit interest rate, Hammer says.

Paying down credit card debt also protects you against the possibility that your interest rate will rise in the future. And once the debt is paid down, it will be easier to put away money on a regular basis and build up your savings.

Paying down debt is one of the only ways you can get a guaranteed risk-free return, Hammer says.

Peer-to-peer lending

Peer-to-peer lending, often known as P2P lending, is a creative option if you’re willing to take a little risk for higher reward, Empyrion’s Foss says. At sites such as LendingClub.com and Prosper.com, you can make 36-month loans to random strangers and earn an annual return of 6 percent to 18 percent. Loan terms are usually one, three and five years, and you can lend to borrowers in different risk categories based on their credit scores.

Just as a bank does, you get a higher interest rate for higher-risk loans. Foss says it’s a less risky option than the stock market. She recommends sticking with borrowers with AAA ratings. Both sites let you spread your risk among different risk classes and loans. So if you’re looking to invest $1,000, you might make $50 loans to 20 different borrowers in different risk classes.

I wouldn’t put all of your cash here, but it might work well as part of a portfolio with dividend-paying stocks and a short-term corporate bond fund, Foss says.

The downside is that unlike other options, your principal is not always available. Instead of your principal earning interest, you’re giving up your principal and being paid back with interest over time. If you do want to get out of your loan, both sites have trading platforms that allow you to sell the note to other investors at a discount and for a 1 percent commission on the note.

Bond funds

Bond funds are another alternative for midterm cash. Funds come in every flavor and hold bonds in everything from foreign countries to utilities to corporations. Adam says short-term bond funds could be an alternative to CDs for some of your cash.

Adam recommends Ginnie Mae funds because they invest in mortgages and have the guarantee of the Government National Mortgage Association. This means the bond funds and holders are ensured timely payment of principal and interest whether or not borrowers make payments. They are typically noted with the abbreviation GNMA.

You’re looking at double the return of a CD, Adam says.

Another option could be an international bond fund. Many of these funds hold bonds from AAA-rated, creditworthy nations such as France, United Kingdom, Germany and Japan. Bond funds are usually used by retirees seeking income, but with today’s limited options, they may also be a place to park midterm cash for a few years.