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Best Ways to Earn Passive Income

Learn the best ways to earn passive income and build wealth

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The best ways to earn passive income aren’t only the purview of the wealthy. With a modicum of startup time and capital, anyone can create a passive income stream. Whether you have a full-time job or are a retiree seeking extra cash, passive income ideas are available to increase your cash flow. Passive income isn’t literally money without effort, but more akin to money with less effort. Some passive income strategies, like owning dividend-paying stocks or bonds, require less work than owning rental real estate. This guide covers how to get started, how much passive income you can earn, the required effort, and various passive income investments. 

Best Ways to Make Passive Income in 2024

15 Passive Income Ideas:

  1. Dividend stocks
  2. Dividend exchange-traded funds
  3. Bonds
  4. Bond exchange-traded funds
  5. Certificates of deposit
  6. High-yield savings accounts
  7. Money market funds
  8. REIT investing
  9. Peer-to-peer lending
  10. Real estate crowdfunding
  11. Real estate debt investing
  12. Affiliate marketing
  13. Digital product sales
  14. Placing ads on your car
  15. Drop shipping

How to Generate Passive Income

There are scores of passive income sources and ways to start earning passive income. Before you begin, you’ll need to figure out how much effort and money you want to expend. Then choose a passive income idea that fits your capital, skills, and interests.

Step 1: Choose passive income streams. Decide whether you want to invest for passive income or run a side gig that generates some cash. Either way, it typically takes some time to build up a decent cash flow. 

Step 2: Choose the platform that fits your needs. If you’re seeking passive investment income, there are many financial brokerage firms, mobile investment apps, and banks that will suffice. However, there are other measures you can consider. For instance, you can learn how to make passive income online by selling products and services. With a social media account like TikTok, Instagram, YouTube, or a website, you can market products and services quite effectively. These are among the best ways to earn passive income, and the required effort is greater in the beginning and diminishes as time passes.

Step 3: Set your expectations. Earning passive income from investing involves predicting your return based upon the investment amount. A $5,000 investment in a dividend fund that pays a 6% yield will provide $300 per year, while successful affiliate websites might earn $1,000 per month or more. 

Compare Top Investment Platforms

Platform Type Account Minimum Fees
Merrill Edge Online Broker $0 $0.00 per stock trade
Options trades $0 per leg plus $0.65 per contract
E*TRADE Online Broker $0 No commission for stock/ETF trades
Options are $0.50-$0.65 per contract, depending on trading volume
Betterment Robo-Advisor $0, %10 to start investing 0.25% (annual) for investing plan or $4/month fee for balances under $20,000
0.40% (annual) for the premium plan
Wealthfront Robo-Advisor $500 for investment accounts, $1 for cash accounts, $0 for financial planning 0.25% for most accounts
No trading commission or fees for withdrawals, minimums, or transfers
0.42%–0.46% for 529 plans
Empower Robo-Advisor $100,00 0.49% to 0.89%

Best Passive Income Investments

The best passive income opportunities often involve balancing human capital, financial capital, and time. Investing in financial markets involves banking and financial products like stocks and bonds. Buying banking products like certificates of deposit and high-yield cash accounts is less risky, but has lower upside potential than investing in financial market assets. 

Passive investing in dividend-paying stocks or interest-paying bonds provides cash flow but requires a larger investment to realize meaningful monthly income. Crowdfunding investment apps also enable the public to buy shares in farmland, large and small real estate projects, wine, art, and more to receive ongoing cash flow. 

There is a range of risk levels when investing in financial assets. The lowest-risk cash flow-producing assets are money market mutual funds, high-yield savings accounts, and bank certificates of deposit. Investing in dividend-paying stocks or stock funds carries the risk that the dividend will be cut and also that the principal value of the investment might fall. Interest-paying bonds and bond funds will vary in price as well, but the interest payments are rarely cut. Individual bonds, held until maturity, will return the par or full value of the investment. But bonds sold before maturity and bond funds might be sold for less, or more, than your original payment amount. 

Crowdfunding apps that invest in real estate, farmland, startups, art, wine, and more carry additional risks. Many require long lockup periods before you can withdraw your money. Others are not as closely regulated as traditional financial assets. With newer platforms, there is a greater chance of asset defaults and business closures.

Dividend Stocks

Buying dividend-paying stocks is a path to owning a portion of a publicly traded company. Many stocks pay a portion of their earnings to shareholders in the form of cash dividends, which are usually paid quarterly. You have the option to reinvest the cash payment in additional shares of stock or to take the cash dividend payment.

Long-term investors who build up a portfolio of dividend-paying stocks or funds have one of the best ways to earn passive income. Investing in dividend-paying stocks is a passive income idea with both cash flow and capital growth potential. 

Dividend Exchange-Traded Funds

A dividend exchange-traded fund (ETF) is an investment vehicle that owns many dividend-paying stocks. You can buy one investment, such as the SPDR S&P Global Dividend ETF (WDIV), and receive access to a portfolio of dividend-paying companies. The WDIV ETF owns global companies that frequently pay higher dividends than U.S. firms. Many dividend ETFs also screen for companies with a history of increasing dividends. 

The dividend ETF is another passive income investment that provides regular cash payments along with an added bonus of capital appreciation potential. Consider management fees when choosing a dividend exchange-traded fund, as higher fund fees can detract from returns. 

Best Online Brokers for ETFs

Company Account Minimum Fees
Fidelity $0  $0 for stock/ETF trades $0 plus $0.65/contract for options trades
Interactive Brokers $0  $0 commissions for equities/ETFs available on IBKR’s TWS Light, or low costs scaled by volume for active traders that want access to advanced functionality such as order routing $0.65 per contract for options on TWS Light; that is also the base rate for TWS Pro users, with scaled rates based on volume $0.85 per contract for futures
Charles Schwab $0  $0 for stock/ETF trades $0.65 per contract for options

Bonds

Bonds are back in favor as interest rates are higher than they’ve been in decades. Unlike stocks, bond investments are loans that you make to a company or government entity. In exchange for the loan, you receive regular coupon interest payments.

Bonds are among the best ways to earn passive income because if you buy a newly issued bond at par, usually $1,000, and hold it until maturity, you’ll receive regular cash interest payments and a return of principal at the bond's maturity. Bonds with lower credit ratings typically provide higher interest payments and greater cash flow, while government bonds and highly rated corporate bonds will offer lower interest payments. 

Bond values can rise and fall, so you might receive more or less than your initial price, should you sell before maturity. The bond’s credit rating suggests the bond’s likelihood of default, with lower-rated bonds carrying a higher risk of default. Investors can also invest in diversified bond mutual or exchange-traded funds to build passive income without lifting a finger.

Bond ETFs

Bundle together a group of individual bonds, and you have a bond fund. With differing bond maturities and investment styles, there are multiple ways to generate passive income with bond funds. Those comfortable with a risky asset can purchase a high-yield bond fund like the SPDR Blmbg ST HY Bd ETF (SJNK), which has a current 7.73% SEC yield.

More conservative investors can buy a diversified government bond fund and receive regular interest payments that are exempt from state and local taxes. Unlike buying an individual bond, both the coupon or interest payment and the fund value will vary. 

Certificates of Deposit

Certificates of deposit (CDs) are banking products that you can buy at most financial institutions. You invest a specific amount of money, typically $100 or more, and leave the money invested for a period of time. CDs typically pay a pre-specified interest rate and are usually issued for terms from three months to five years or more. 

There are a variety of CD types, including fixed and floating variable interest rates. Investors seeking regular cash flow and a stable principal value can create a CD ladder and buy CDs at regular intervals. As one CD comes due, you reinvest the proceeds in a new certificate of deposit. Ladders are among the best passive income investments to increase cash flow when you expect interest rates to rise. 

High-Yield Savings Accounts

A bank high-yield savings account pays higher interest payments than a typical savings account. The required minimum balance can be greater than that of a savings account.

If you’re wondering how to make passive income, a high-yield savings account is a good choice. For passive income from money that you need for near-term expenses and emergencies, a high-yield savings account is a sound choice and keeps your funds liquid. 

The process of opening a high-yield savings account is similar to opening a traditional bank account. Simply click on the “open an account” button on your preferred bank’s website and answer several personal questions, such as address, Social Security number, and type of account. To verify your identity, you might need to supply prior addresses, debts, and employment details.

Money Market Accounts

A money market mutual fund is an investment vehicle that owns short-term commercial debt. This investment is distinct from a money market bank account, which is similar to a high-yield bank savings account. Like a typical mutual fund, money from many investors is pooled to invest in short-term debt and cash-equivalent instruments. The allure of these accounts is that the share value is pegged at one dollar, and yields are among the highest of the high-yield cash equivalent group. 

You’ll need to invest in a money market fund within an investment brokerage account. These investments are liquid, and the money can be withdrawn within a few days. The interest from money market funds can be withdrawn for cash flow or reinvested to grow for the future.

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Provider Best For Key Benefit
Prime Alliance Bank Best Overall Competitive interest rate for any balance
Patelco Credit Union Best for Small Balances Higher APY for smaller balances
Axos Bank Best for Debit Users Full debit card access with no monthly fees
Ally Bank Best for Ultimate Flexibility Access your funds online, through ATM, debit, or Zelle
Synchrony Bank Best IRA Options Roll over an existing IRA to an IRA money market account

Alternative Passive Income Ideas

You’ll find a laundry list of alternatives to stock, bond, and cash passive income ideas. Some of these choices are more passive than others. Real estate investing is frequently touted as a response to the question, “What is the best way to earn passive income?” But real estate investing takes many forms, and requires varying amounts of effort.

Owning and managing real property requires a chunk of capital and is a passive endeavor until a pipe breaks or the renter doesn’t pay their rent. Then it is a lot of work. Real estate crowdfunding apps or investing in real estate investment trusts (REITs) are more passive. Once you purchase the securities, you wait for the cash flow.

Another popular way to earn passive income online is by creating an affiliate website, but this involves more work than meets the eye. An Airbnb rental is only semi-passive if you hire a team to manage the property. Cash-back credit cards and shopping sites might be considered a passive income idea, yet you’re spending in order to receive the cash. That’s not a net-positive endeavor. 

Other alternatives to passive income involve digital property sales, like e-books, courses, apps, and other online goods. For all of these passive income ideas, there is a hefty startup time commitment and some upfront cash as well. You’re also less certain of receiving a return on your investment if the sales miss expectations. Evaluate these alternatives to passive income to learn whether there's a strategy for you. 

REIT Investing

A real estate investment trust or REIT is an investment vehicle that owns a pool of commercial real estate. There are REITs that provide broad diversification across the real estate landscape. Or you can buy niche REITs that own senior housing, student housing, warehouses, commercial property, mortgages, shopping malls, data centers or many other varieties of property. The benefit of REITs for cash flow is that they are required by law to pay out 90% of their taxable income to shareholders.

Peer-to-Peer Lending

Debt investing is popular, with many platforms that enable everyday investors to be the bank and lend money to others. Peer-to-peer lending offers various types of loans for various reasons. Platforms match borrowers with lenders for various cash needs. 

These peer-to-peer lending apps offer higher interest payments than other traditional stock, bond, or cash vehicles. But they are riskier as potential loan payment defaults can eat into your returns. To minimize that risk, you can choose to invest in higher-quality loans and diversify by owning many loans.

Real Estate Crowdfunding

Real estate crowdfunding allows investors to finance real estate projects through online platforms with the goal of profiting either from capital appreciation or passive income. There are a range of real estate crowdfunding websites offering small to large investors an entry into commercial, industrial, single-family, and apartment building investing. 

Fundrise is our 2024 best real estate crowdfunding website. It provides investment access to real estate and startup venture capital funding with only a $10 minimum.   

Real estate crowdfunding can deliver a higher interest rate than REITs, but it has less liquidity, less government oversight, and a greater risk of default. 

Real Estate Debt or Note Investing

Real estate debt or note investing puts you in a banker's seat. You lend money to those seeking to buy new real estate, remodel existing property, fix and flip, and a variety of other types of real estate investors. 

Apps like Groundfloor provide investors the opportunity to lend to real estate buyers. The allure of lending to real estate borrowers is that your investment is secured by real property. Some of the larger real estate crowdfunding apps also deliver real estate note investing. 

A drawback to real estate note investing also makes it one of the best investments for passive income. Unlike publicly traded securities, you can’t immediately redeem your shares, but may need to wait several months or more for a return of your principal investment. The lack of liquidity can also lead to higher investment returns. 

Affiliate Marketing

Affiliate marketers sell products and services on their websites or social media accounts and receive a commission from the brand for the sale. Affiliate marketers frequently write reviews to draw visitors to their websites. The setup for affiliate marketing is not passive and involves creating a website or social media platform, developing contracts with companies who pay affiliates, and creating content to draw visitors to the website.

The passive aspect of affiliate marketing is that once the content is written and a website develops a stream of visitors, your work is diminished. That’s only partially true, as you’ll need to write new content and update old content in order to maintain and increase website traffic. Additionally, it can take months or more to begin to generate cash flow. We place affiliate marketing on the higher-effort step of the passive income ideas ladder. 

Digital Product Sales

Creating digital products or content, such as online courses, is among the best ways to earn passive income online. Similar to affiliate marketing, you’ll sell your digital products online through a variety of outlets, such as an Etsy store, social media platform, YouTube, or a website.

Align your digital products with your area of expertise. Sample types of digital products include printouts, e-courses, e-books, webinars, and more. This is not the best passive income idea for beginners with limited free time. Making passive income with digital product sales initially requires market analysis, product creation, and marketing before realizing decent passive income flow. 

Advertise on Your Car

Drivers with cars can get paid to wrap their cars in advertisement banners. We found firms that paid from $100 to $500 per month just for driving with an advertisement on their car. For anyone wondering, “What is the simplest way to make passive income?” Car wrapping is not without its limitations. 

Car wrapping scams exist and, unfortunately, are abundant in the industry. Don’t pay money upfront for access to advertise with car wrapping. You’ll also need to accept the advertiser's stipulations of mileage, and other factors. Finally, making passive income by advertising on your car means that you need to drive around with an ad on your car. To put this in perspective, the ad can be simply placed on the door or hood of your car, or it can be wrapped around the entire vehicle. Make sure you understand what’s needed before signing a binding contract. 

Create an Online Store with Drop Shipping

Creating an online store with drop shipping can answer the question, “How can I passively make $1,000 a month?” After setting up your product inventory, payment system, and marketing strategy, drop shipping is among the simplest ways to make money online. Select products from manufacturers or wholesalers and sell them as your own inventory. The supplier handles the inventory and shipping, so you can grow your brand and market the shop.

Like most passive online income strategies, after setting up the business, you’ll need to devote a lot of time to marketing. You can market your store through a website and/or social media. Once you’re up and running, with brand recognition and customers, maintaining an online store with drop shipping is a good form of passive income. 

Best Alternative Investing Platforms

Platform Focus Minimum Investment
Fundrise Real estate investments $10
Masterworks Art investments $15,000
Yieldstreet Asset variety $10,000
iTrustCapital Gold and cryptocurrency $1,000

Factors to Consider When Choosing Passive Income Streams

Capital 

All passive income ideas require startup capital. To develop a meaningful passive income stream from financial assets like cash equivalents, stocks, and bonds, you’ll need a decent account balance. With $100,000, an investment paying a 5% dividend or interest payment provides $5,000 per year cash flow.

Although affiliate marketing requires a small cash outlay to potentially obtain cash flow, you’ll pay more with your human capital or time.

Risk 

All investments carry a degree of risk. Certificates of deposit and high-yield cash investments don’t risk the principal value of your investment, but they could lose purchasing power over time due to inflation. Investing in higher-risk dividend-paying financial assets involves the potential to lose principal and decrease cash flow should dividends be cut. Crowdfunding passive income investments are less regulated and can tie up your money for longer periods with added risks of defaults and platform failures.

Taxes

With the exception of tax-exempt municipal bonds from your state of residence, all income is taxed by the government. After-tax income is what really matters, so understand how your investment is taxed, and your specific marginal tax bracket. Dividends and interest payments may have their own tax rates.

Key Differences Between Stocks and Alternative Investments

  Stocks and ETFs Alternatives
Liquidity Extremely liquid; can trade throughout the day Many have lock-up periods which tie up your money for periods from several months to several years
Fees Fee-free trading with most brokerages; most ETFs and mutual funds charge less than a 1.0% expense ratio  Fee structures range from simple to quite complex; a few platforms provide low-fee alternative investments, while others have complex fee structures, including performance-based add-on fees 
Minimum Investment  Fractional stock and ETF shares can be bought on multiple investment platforms for as little as $10  Platforms are available for both accredited and non-accredited investors; minimum investment amounts range from a low of $10 to four to five figures.
Correlation  Stocks exhibit distinct correlations among specific sectors and geographic regions; lower correlations between assets lead to more price stability within your investments Alternatives will also have correlations within themselves and won’t always move in lockstep—the correlation between stocks and alternatives will depend upon the time period and specific alternative investment vehicle

Frequently Asked Questions (FAQs)

What Is Passive Income?

Passive income is money that you earn without much effort. In contrast with earned income, from a job, passive income flows after an initial startup effort and cost to create long-term cash flow. Passive income ideas span low-effort activities such as buying a high dividend bond fund to creating online businesses that require an initial startup effort which becomes less labor-intensive over time.

What’s the Difference Between Active Income and Passive Income?

There is a fine line between active and passive income. Clearly, going to work every day in exchange for a regular paycheck is active income. Task work such as food delivery, rideshare driving, freelance jobs, consulting, and contract work are also ways to create active income. With active income, you get paid for working. Passive income ideas span a range of jobs that require less effort than active income. 

Receiving income in exchange for zero effort is unlikely unless you count receiving an inheritance or winning the lottery. Writing a book and then receiving royalties is a great example of passive income, yet with the passage of time, book royalties will decline. In contrast, if you buy a dividend-paying stock fund, once you select the investment, you will receive ongoing dividend payments without much additional effort. 

Some passive income ideas are liquid, like buying dividend-paying investments, while others are less liquid, like long-term real estate syndications. Some passive income jobs require minor ongoing work in exchange for cash flow, while others are less passive and involve greater ongoing effort. Passive income strategies range from those with a small startup effort, like investing in dividend-paying stock or money market mutual funds, to more labor-intensive ones, such as managing rental properties or creating an affiliate marketing review website.

How Can You Make Passive Income With Little to No Money?

By creating digital products like courses, apps, e-books, and more and selling them, you can create passive income with minimal cash. Books can be sold on digital marketplaces like Amazon, while you can sell other products through your social media accounts or an online store. While you don’t need a lot of cash to create digital products, you need time and effort to market and sell them.

If you have a job with a 401(k) or other retirement account, you can contribute part of your paycheck to that account and invest in financial assets. At retirement, you’ll have enough money to create a passive income stream.

Can You Live Off of Passive Income?

Yes, you can live off of passive income. It’s easiest to live off of passive income if you live in an area with a low cost of living. To live off of financial investment and cash-equivalent income, you’ll need a larger amount of money. To earn $30,000 per year, you’ll need $600,000 invested at 5% per year. 

To live off of digital product or service sales, you’ll need to earn several thousand dollars per month. The same goes for affiliate marketing. 

Older individuals who have built up a large amount of investable assets are most likely to be able to live off of passive income. The exceptions are those who’ve made a lot of money early in life, live simply, and invest for income and capital growth.

How Do You Pick the Right Passive Income Idea?

To pick the right passive income idea, assess your available time, risk tolerance level, and available capital. Also, explore your skill sets to determine which passive income ideas are a good fit for you. The easiest way to start investing for future passive income is to start small and automate your investing.

Who Should Consider Passive Income Streams?

Everyone should consider investing for the future. When you are older, it’s easier to create a passive income stream with investing. Younger individuals with ambition and the ability to motivate themselves are wise to consider creating passive income streams through online stores and creating digital products. Employment is uncertain, and creating multiple streams of income is a sound financial plan.

Is Passive Income Taxable?

Yes, all income is taxable. Earned income is taxed at the federal, state, and local level. You’ll also pay self-employment tax with earned self-employment income. Investment income has its own tax considerations. While real estate can be taxed in various ways.

To understand how passive income is taxed, it’s wise to visit the IRS website for more details. Online tax software programs such as Turbo Tax can help you estimate the tax you’ll pay on passive income.  

Does Passive Income Affect Social Security Benefits?

While passive income won’t impact the amount of your Social Security benefit, it can affect the amount of tax you’re required to pay.  Up to 85% of your Social Security benefits can be taxed. Like all IRS regulations, there is a list of criteria to determine the impact of your passive income on the taxation of your Social Security benefits. 

Visit the SSA.gov website to understand how your passive income could impact the taxation of your Social Security benefits.

How to Make Passive Income as a Teenager

Teenagers have many money-making ideas available to them. Unless you have access to a large sum of money, earning passive income through investing in dividend-paying assets is unlikely. Creating an online business as a teenager is a potential path to future passive income. Starting an online store, selling digital products, creating an e-course, or writing product reviews are all paths to ultimately making passive income as a teenager. 

Teenagers can promote their businesses online through a website and/or social media accounts. These beginner passive income ideas require substantial startup effort and a modicum of long-term maintenance.

Article Sources
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  1. Morningstar. "SPDR Bloomberg Short Term High Yield Bond ETF."

  2. Securities and Exchange Commission. "Investor Bulletin: Real Estate Investment Trusts (REITs)."

  3. Internal Revenue Service. "Social Security Income."