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Dear Dr. Don,
I have liquidated some of the money I had in IRA mutual funds and would like to put it in a CD. I notice that IRA CDs
offer a much lower rate of interest than regular CDs.
Should I pay the taxes and start a regular CD account, or put my money in a low-interest CD and keep it
as an IRA?
-- Howie Hampered
Dear Howie,
I don't think you should take the tax hit just to pick up the additional yield on a regular CD. I used Bankrate's
"CDs & Investments: Compare Rates" feature to put
together the following table.
 |
Comparing CD rates |
|
| 1-year |
4.25% |
4.35%1 |
| 3-year |
4.10% |
4.70% |
| 5-year |
5.18% |
5.15% |
| 1 WaMu has a one-year CD rate yield of 5% APY. |
As you can see, it's a mixed bag as to which type of CD yields more in the high-yield market.
To satisfy my curiosity, I took a look at rates on the two types of CDs in my home market using
Bankrate's "Compare IRA CD/Savings Rates." That
table is below. As you can see, there's no difference between the yields on the two types of accounts.
|
CD rates in Dr. Don's market |
|
| 1-year |
4.15% |
4.15% |
| 3-year |
3.74% |
3.74% |
| 5-year |
5.15% |
5.15% |
So, I'm saying you need to shop around for your IRA CD provider -- don't accept that the IRA CD has
to earn a substantially lower yield. Protect the tax deferral on this account by keeping it as an IRA account.
See my advice to Raymond Retirement
about doing a trustee-to-trustee transfer or a rollover of your existing IRA account.
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