Best Passive Income Ideas

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It may not have not been reviewed, commissioned or otherwise endorsed by any of our network partners or the Investment company.

Updated on Wednesday, January 19, 2022

Passive income is money you make from investments or products where you don’t play an active role. Good passive income ideas can help you build wealth without doing much work beyond the upfront investment in time and money. There are many ways to earn passive income, and they require varying levels of time and money.

What is passive income?

As the name suggests, passive income is money you earn without active involvement or participation. If you earn money without doing anything after an initial investment, you likely have passive income.

Passive income vs. active income

Compared with passive income, active income requires more of your time and involvement. Active income includes:

  • Your full-time job: You need to show up and work full-time. Even if you make money beyond your salary, this is considered active income.
  • A freelance job or side gig: Even if you have a day job, your freelance or side hustle income requires you to be actively involved. This would still be active income.

How to make passive income

You can earn passive income by:

  • Using what you already have: There might be ways to earn passive income from things you already own, like a credit card or cellphone.
  • Making investments: You spend some initial time and money with investments that pay dividends as passive income.
  • Building a product that can make money over time: Products like websites, blogs or e-books can earn passive income after an initial time and money investment.

15 passive income ideas

Passive income ideas may still involve some level of work, time, money and risk. Consider the following 15 ideas and what they require:

High-yield savings and money market accounts

You can open up a high-yield savings account or money market account to earn passive income. These accounts have low risk, as long as you use a bank insured by the Federal Deposit Insurance Corporation (FDIC) or a credit union insured by the National Credit Union Administration (NCUA). For the lowest initial investment required, look for an account with no monthly fee, a small or no required deposit to open and no minimum required to earn interest. To get started, explore the best savings accounts and best money market accounts available now. Many financial institutions also offer savings account sign-up bonuses.

While the risk is low, so is the earning potential. (As of late 2021, the average rate for savings accounts is 0.06% and for money market accounts is 0.07%.) Sometimes, these accounts also limit earning potential by putting a cap on the balance that can earn the high interest rate. However, they have the benefit of compound interest, which adds up over time.

Risk level: Low
Time commitment: Low
Initial investment needed: Low
Earning potential: Low

Credit card cashback rewards

Credit card cashback rewards help you passively earn cash with each purchase you make. This is because you earn points (that translate into cash) just by making everyday purchases such as groceries and gas. You can typically find cashback reward credit cards with no annual fee, a 0% annual percentage rate (APR) for a limited time and cashback rewards from 1% to 5% on certain purchase categories. Sometimes, these cards even include an introductory cash bonus when meeting a spending threshold in the first few months.

To get started, you’ll need to first understand how credit cards work. Spending more money than what you can pay off will lead to debt, which makes this idea a bit risky. You’ll need to be a strategic shopper to take full advantage of this passive income idea.

Risk level: Medium
Time commitment: Low
Initial investment needed: Low
Earning potential: Medium

Cashback websites

Similar to cashback credit cards, cashback websites (like Rakuten and QuickRewards) can help you earn passive income from purchases you already make. All you need to do is sign up for the cashback site first, check out offers and click through to retailers to earn free cash from any purchases.

This passive income idea can be a bit inconvenient because you need to remember to go through the cashback website to earn credit from your purchase, which takes extra time. You also might not find all of your favorite retailers on the website. Overall, the risk is lower than cashback credit cards because there’s less risk of getting into debt.

Risk level: Low
Time commitment: Medium
Initial investment needed: Low
Earning potential: Low

Having an app on your phone

If you have a cellphone that can download apps, then this passive income idea might be a good fit. There are phone apps that will automatically transfer money to your savings or round up purchases to sweep into investment accounts, such as Acorns (read our full review). While there is some minimal investment, you might have a decent earning potential while making everyday purchases.

Phone apps might have a monthly cost or require you to open a special bank account. Apps that invest your money run the risk of losing that money in the market.

Risk level: Medium
Time commitment: Low
Initial investment needed: Low
Earning potential: Medium

Dividends

After making an initial investment in some companies, you can receive a portion of their earnings (called dividends) on a fixed schedule, typically quarterly. This requires purchasing dividend-paying stocks. The stock market has typically had a 10% average rate of return.

Dividends are inherently risky. Because you’re relying on a company’s profit, there’s a chance to experience a loss instead of a gain. You can reduce your risk by diversifying your investments so that gains can balance losses. Consult a financial advisor to discuss what role dividend investments could play in reaching your financial goals.

Risk level: High
Time commitment: Low
Initial investment needed: Medium
Earning potential: High

Real estate investment trust (REIT)

Similar to a dividend, a real estate investment trust (REIT) will pay you a share of income after you make an initial investment. A REIT is a company that owns income-producing real estate such as apartment buildings, malls, office buildings and resorts. REITs allow you to benefit from income-producing real estate without needing to buy rental or commercial property. You can purchase shares on a public exchange, such as the New York Stock Exchange, open an online brokerage account or work with a robo-advisor.

With REITs, you can get high returns, but you can also get high losses. REIT.com can show the historical performance from 1972. Your initial investment depends on the price and platform you use. For instance, a robo-advisor typically has a low minimum deposit requirement, but also has annual management fees. Before investing in REITs, research them or consult a financial planner for advice.

Risk level: High
Time commitment: Low
Initial investment needed: Medium
Earning potential: High

Advertising on your car

You can generally make over $50 monthly in passive income by advertising on your car.
Businesses like Sticker Ride and Wrapify will pay you to put an advertisement wrap on your car.
If you don’t mind being a driving billboard, this could be a good passive income opportunity for you.

However, there is an upfront time commitment initially to set up the program — and if your car breaks down, you would lose your ability to earn income with this method. Also, the advertising company may have specific car model or driving record requirements to meet and you may need to pay to keep your car clean.

Risk level: Low to medium
Time commitment: High
Initial investment needed: Low to medium (as long as you already own a car)
Earning potential: Low to medium

Affiliate marketing

With affiliate marketing, you can earn income through commission by promoting referral links to other companies’ products. To make passive income this way, you typically need to have a blog, social media account or website — along with a decent following — which can take time and money to build.

You can use affiliate networks like Rakuten and Google AdSense, which embody numerous brands and have large payouts. For instance, Google AdSense shows your revenue potential by region and industry — a beauty and fitness website that gets 50,000 monthly page views in North America has potential to make at least $7,000 a year. You can also earn affiliate commissions through individual brands that you already use. For example, BlueHost offers a $65 commission for every referral you get to sign up via a coded link or banner.

To be successful with this passive income idea, you’ll need SEO and marketing knowledge to build a high-value audience that trusts your recommendations.

Risk level: Low
Time commitment: High
Initial investment needed: Medium
Earning potential: High

Online courses

Online courses can provide perpetual passive income if you have expertise in a topic. You can use platforms such as Udemy and Skillshare to post your course and get paid. However, you’ll need to invest time upfront to create the course, and it might not generate income right away. Consider making a course from training or advice that you regularly give coworkers or friends so that you can improve the odds of making revenue.

On Udemy, you can post your course for free and make 37% to 97% of the revenue; most courses start at $14.99. With a history of 480 million total enrollments, platforms like Udemy can have a big payout.

Risk level: Low
Time commitment: High
Initial investment needed: Low
Earning potential: High

Selling stock photos

If you have a passion for photography, then you may want to consider selling stock photos for passive income. Stock photo websites, like Shutterstock, post photos that individuals or companies can purchase at a fee. Each time they purchase a photo that you made, you get paid. There is an initial time and money investment to take noteworthy photos. However, if you carefully review the submission guidelines and choose the right keywords for your images, you could make money for years to come from the same image.

Risk level: Low
Time commitment: Medium to high
Initial investment needed: Medium to high
Earning potential: Medium to high

Print-on-demand business

A print-on-demand business allows you to earn passive income by listing items for sale without having any inventory. For instance you can use a platform like Printful to make desirable clothing designs for people to purchase. Upon purchase, Printful will print and ship the product out for you. The earning potential can vary depending on how you price your items. Printful will give you a quote on your design and shipping for you to pay before you can profit. Bulk orders can lower the price you pay to the fulfillment provider. You can also sell print-on-demand mugs or notebooks through Zazzle, and printable planners or budget sheets on Etsy.

Print-on-demand is a mostly automated business, but it still requires a time commitment. You need to create the designs and market the mockups of the product to get customers. On the flipside, you don’t need inventory so your initial investment and risk is low.

Risk level: Low
Time commitment: Medium
Initial investment needed: Low
Earning potential: Medium

E-books

If you’re a writer, you can make self-published e-books to earn passive income. Writing an e-book can be a major time investment, because you need to research and write about your expertise in topics that interest readers. You can get started on a platform like Kindle Direct Publishing, which can give you 35% to 70% royalty per e-book sold. However, one e-book can keep generating income for years because it is available in perpetuity. E-book sales are on the rise, so the passive income idea can be lucrative.

Risk level: Low
Time commitment: High
Initial investment needed: Low
Earning potential: Medium to high

Real estate rentals

Rental property may be an incredibly lucrative way to make passive income because you can receive income monthly from your renters in the form of an average 9% rate of return. However, rental ownership takes work, time and a large investment. For instance, a condo can cost, on average, over $300,000 with a down payment of 3% to 20% required. Then, you need to find and screen your tenants to make sure they can meet the rent payments each month. You also need to have money aside and availability for emergency repairs and maintenance.

To make rental properties more passive, you can hire a property manager. However, it can cost you around $29 per hour, which decreases your earning potential. If the work and investment seem overwhelming, remember that there are other ways to invest in real estate.

Risk level: Medium to high
Time commitment: High
Initial investment needed: High
Earning potential: High

Peer-to-peer lending

You can use peer-to-peer lending platforms, such as Funding Circle or Prosper, to loan money to individuals or small businesses and earn interest that’s typically higher than you’d find at a bank or credit union. This passive income idea is risky, as borrowers can default on the loan, but you can hedge your risk by dividing your money into multiple loans. You can also use factors like credit score to determine the risk profile of the borrower, which may take some time to investigate. According to Funding Circle, your annualized return after fees and bad debt can range from 2.5% to 4.6%. Meanwhile, Prosper has historical returns of 5.6%.

Risk level: High
Time commitment: Medium
Initial investment needed: Medium to high
Earning potential: Low to medium

Domain name investing

With e-commerce on the rise, buying a desirable domain name to sell might be a lucrative passive income idea. Most e-commerce stores buy their own domain name and most typically choose a “.com.” If you research popular niches and can create desirable domain names that are available, then you can purchase them and resell later. You can also buy an existing domain that’s for sale and resell it at a higher price. A good domain name is simple, easy to spell and memorable. New domain names typically cost $10 to $15 per year.

Creating or buying a desirable domain name may require SEO knowledge — you can start with a popular keyword phrase that has high search volume. You can buy and sell domain auctions websites like GoDaddy.com to sell your domain name. Some domains have prices as high as $50,000. If you can think of the next Google.com, you might land on major earnings.

Risk level: Low
Time commitment: Medium
Initial investment needed: Low
Earning potential: High

Passive income: FAQs

It depends on your personal circumstances and financial situation. Not every passive income idea is equal in terms of risk, time commitment and earning potential. E-books, online courses and print-on-demand have a balance of medium to high earning potential, low risk and low investment and so may be seen as worthy passive income ideas.

You can start multiple passive income ideas at the same time. For instance, you can create an online course and use the same content to write an e-book. Since both ideas use different platforms, you can maximize your earning potential by having multiple income streams from one idea.

Residual income is money you receive after completing initial work. For example, earning funds from an e-book years after you’ve published it is an example of residual income because the payout continues long after you’ve done the work.

The “Find a Financial Advisor” links contained in this article will direct you to webpages devoted to MagnifyMoney Advisor (“MMA”). After completing a brief questionnaire, you will be matched with certain financial advisers who participate in MMA’s referral program, which may or may not include the investment advisers discussed.