Rachel Cruze: 6 Ways You Can Really Earn Passive Income

Budgets are tight. People are always looking for new ways to increase their income, but there are only so many hours in the day. How can you earn money without putting more time and energy into working?

That’s where passive income comes into play.

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In a recent video on her YouTube channel, personal finance author and media personality Rachel Cruze walked viewers through six ways to earn passive income. Here are her strategies.

What Is Passive Income?

Passive income is money you earn without actively exerting effort. At a regular nine-to-five, your income comes from the time and labor you put in. Passive income is different. You can even earn passive income while you sleep. 

If you use passive income strategies and continue to work, you’ll have extra money in your budget. More income without additional effort will help you achieve your financial goals.

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6 Accounts That Generate Passive Income

There are many different strategies for earning passive income. In her video, Cruze focused specifically on different accounts that generate interest. 

“Interest is a really beautiful thing. Not when you pay interest, but when you earn interest,” she emphasized. Cruze highlighted these six accounts for earning passive income through interest.

1. Regular Savings Account

Starting with the lowest interest rate, you can put your money in a regular savings account. Regular savings accounts pay interest on the money you deposit. As Cruze notes, however, this interest rate is typically very low. 

For example, on standard savings accounts with a $2,500 minimum deposit, the average rate is 0.23%. Your $2,500 minimum deposit would earn just $5.75 in interest over a year at these rates.

The low interest rates lead Cruze to say she doesn’t really recommend a regular savings account. “This account, it will not earn you a lot of money, but it’s really secure,” she said.

2. High-Yield Savings Account

The next option is a high-yield savings account. High-yield savings accounts function almost identically to regular savings accounts. They just offer much higher interest rates on deposits. 

“So this is one that I really do like,” Cruze said. She recommends putting your emergency fund in a high-yield savings account. “They stay secure, while again allowing you to earn a significant amount of money through interest just by letting your money sit there.”

In March 2024, interest rates on high-yield savings accounts ranged from 4% to above 5%. If you deposited $10,000 in one of these accounts with a 5% interest rate, you’d earn $500 this year. Next year, you’d earn interest on $10,500 — your initial deposit plus the previous interest. That’s how your money can grow over time without you doing anything.

3. Mutual Fund

Aside from these two types of savings accounts, Cruze also recommends investing. One option is mutual funds. As she explained, “Mutual funds are professionally managed investments that allow investors to pull their money together.”

A professional SEC-registered investment advisor takes that pool of money from all the investors and invests it in a portfolio. The portfolio is typically a collection of stocks, bonds and other securities and assets. 

When you invest in a mutual fund, you purchase a share of that portfolio. You have a small piece of a pie with many different components. 

If the assets in the mutual fund increase in value, you earn passive income on your investment. Note that there is some risk of losing money. However, mutual funds are diversified, so your risk is lower than with some other investment options. 

4. Individual Retirement Account 

The fourth account that Cruze highlights for earning passive income is an individual retirement account. An IRA is an investment account specifically for retirement with special tax advantages. 

With a traditional IRA, you don’t pay income tax now on the money you deposit. You only pay taxes when you withdraw the funds. A Roth IRA is the opposite. You deposit money after paying taxes on it, but you don’t have to pay taxes later when you withdraw funds from your Roth IRA.

Cruze said, “I love Roth IRAs. You use after-tax money to fund the Roth IRA, and within that, your money grows tax-free.”

She notes that the money in an IRA is probably in mutual funds. “This is a great place to put your money when you’re looking into retirement,” she said.

5. 401(k)

Cruze’s fifth account for earning passive income is a 401(k). Like an IRA, a 401(k) is an investment account for retirement. The key difference is that 401(k)s are available through your employer. 

Your 401(k) deposits come out of your pay before taxes. This money goes straight to your investment account, so you don’t have to worry about making deposits. 

Many employers also match 401(k) contributions up to a certain percentage of your income. As Cruze stated, “That is free money. You match with them and it’s fantastic.”

You invest the money in your 401(k) in financial securities like stocks and bonds. These assets may grow in value, earning you passive income.  

6. Index Fund

Finally, Cruze ended her list of passive income accounts with index funds. Index funds are investments that track the returns of a market index like the S&P 500. 

Say you invest in the S&P 500 Index. If the stocks in that index rise in value, your index fund investment will grow by the same percentage. Cruze said, “It’s a great measuring stick to know how the stock market is doing, how the economy is doing.”

In a strong economy, these index funds will provide great passive income. Index funds have the potential for the highest returns of the six accounts, but also the biggest losses during stock market downturns.  

Final Take

All six accounts Cruze highlights will earn you interest on your money, with varying interest rates. The interest you earn is passive income — very little effort is necessary. 

If you’re interested in earning passive income, consider these six options. Your money will grow without you having to do much at all. That growth starts when you pick an account and deposit your money, even as soon as today.

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This article originally appeared on GOBankingRates.com: Rachel Cruze: 6 Ways You Can Really Earn Passive Income

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