retirement

How safe is a CD in an IRA?

Don TaylorQuestionDear Dr. Don,
For the past year, I have invested in an IRA CD. I was reading on Bankrate that an IRA savings account is safe, even in a bad market. If rates go up or down, you are still safe. Is the same true for an IRA CD?
--Madeline Mindful

AnswerDear Madeline,
The safety comes from the certificate of deposit being insured by the FDIC. Certain retirement accounts are FDIC-insured up to $250,000 per owner. The FDIC website has more information on deposit insurance, including EDIE, the Electronic Deposit Insurance Estimator. The FDIC insurance kicks in if the bank were to fail.

The typical CD pays a fixed rate of interest over a fixed term. That's true of the IRA CD, too. The bank has custody of your retirement funds, and this custody arrangement has additional government reporting requirements over a non-IRA deposit account.

The average bank customer isn't buying negotiable CDs, but negotiable CDs do fluctuate in value with changing interest rate environments. You'll get your principal back at maturity and the CD pays a fixed rate of interest, but if you needed to redeem a negotiable CD prior to maturity, you'll get the market price for the deposit.

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