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- An IRA certificate of deposit is a type of retirement investment account.
- Conventional, Roth, and SEP IRA CDs are subject to the same policies and restrictions as any other IRA.
- IRA CDs could be a worthwhile option if you’re nearing retirement and looking for a safe investment.
- See Insider List of Best CD Plans »
You’re probably familiar with an Individual Retirement Account (IRA), a tax-deferred investment account that helps you save for retirement. You may also have heard of a certificate of deposit (CD), a savings account that fixes your annual percentage return (APY) over a period of time.
But what is an IRA CD? It’s a type of account that combines these two concepts.
What is an IRA CD?
An IRA CD locks your APY for a period of time, saving your money specifically for retirement. It may be an option worth considering for people approaching retirement who are looking for a safe way to invest their money.
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How an IRA CD works
An IRA-CD is a type of retirement account that invests your money in a certificate of deposit (CD). Opening a regular CD saves you money for the near future—with an IRA CD, your CD is part of your long-term retirement savings strategy.
Most banks give you a choice of a traditional or Roth IRA CD, and some offer SEP IRAs for the self-employed. An IRA CD follows much the same rules as any other IRA. You are limited to a certain amount of contributions per year and pay the usual taxes and early withdrawal penalties that you would pay with any other Traditional, Roth or SEP IRA.
This means you contribute dollars after tax to a Roth IRA CD and pay no tax when you withdraw funds. With a traditional IRA CD and SEP IRA CD, you typically deposit money before taxes are deducted and then pay income tax on withdrawals.
Where can you open an IRA CD?
Don’t assume that just because a bank offers a CD, it also has IRA CDs – it’s not that common. Of the banks that offer IRA CDs, the best rates currently are Ally, Discover, Synchrony, and Alliant Credit Union.
These banks offer competitive interest rates and a variety of repayment terms, and they don’t charge monthly maintenance fees. Your choice may depend on what term you want, how much you have for an opening deposit, or whether you want a SEP IRA.
Should you get an IRA CD?
Here are some of the pros and cons to consider when getting an IRA CD:
In general, your retirement planning strategy should change as you approach retirement. If you have a significant number of years left to invest, you will likely want to take on more investment risk than an IRA CD can offer. However, as you retire in the next few years, an IRA CD can be a less risky investment option with a guaranteed return.