Updated: Jan. 22, 2019

Compare IRA CD rates. See all CD rates from banks and credit unions to find the best deal.

Investing in an IRA CD is relatively easy. Buying an IRA CD is similar to purchasing a regular CD, but instead of transferring money into a CD from your checking or savings account, you might buy a CD using funds in your IRA or by using non-qualified funds that have already been taxed.

IRA CDs are also appealing to investors who like the predictability that comes with a fixed annual percentage yield (APY). Use this CD calculator to see exactly how much money you’ll earn over the term of the IRA CD.

What is an IRA CD?

An IRA CD is an individual retirement arrangement (IRA) – also referred to as an individual retirement account – in a CD. Some people will open a traditional IRA CD until the IRA contribution deadline for that tax year in order to deduct some or all of their contributions to a traditional IRA. For instance, the 2018 IRA contribution deadline is April 15, 2019. A Roth IRA CD isn’t eligible for this deduction.

Check with your tax adviser to make sure you’re able to contribute to an IRA. Others may roll over a 401(k) to a traditional IRA, though this option isn’t appropriate for everyone; it depends on your risk tolerance and how far away you are from retirement, which is also called your time horizon.

Who are IRA CDs best for?

IRA CDs are best for diversifying a portfolio. They can diversify your portfolio if your other retirement accounts are invested in areas such as the stock market, mutual funds, exchange-traded funds or other investment vehicles where a loss of principal is possible.

That’s why IRA CDs are also a good option for someone with a low-risk tolerance. If a person doesn’t like surprises – and wants to know exactly how much interest the investment will make – a fixed-rate IRA CD provides that. As long as the IRA CD is kept until maturity, the IRA CD will earn the expected interest and won’t be penalized.

Retirement funds can be placed in a CD at an FDIC institution. FDIC insurance is up to $250,000 for the combined balance of all self-directed retirement accounts owned by the same person in the same insured bank, according to FDIC.gov. For a self-directed retirement account, adding beneficiaries doesn’t increase your maximum FDIC insurance coverage.

Is an IRA CD tax-deductible?

You may be able to deduct some or all of your contributions to a traditional IRA. However, Roth IRA contributions aren’t deductible. You also don’t report the Roth IRA contributions on your tax return, according to IRS.gov.

Can I transfer an IRA CD to another bank?

A trustee-to-trustee transfer is a possible method to move your IRA CD from one bank to another. It’s best to make sure that your CD has matured before moving it so that you avoid potential early withdrawal penalties on your CD.

You may want to transfer the IRA CD to an IRA savings account or IRA money market account before initiating a trustee-to-trustee transfer to another IRA CD. Check with your bank to make sure the funds don’t have to be in this IRA savings account or IRA money market account for a certain period.

What is the penalty for early withdrawal of an IRA CD?

One penalty for early withdrawal on an IRA CD would be the same as any other CD – if you withdraw your money before the CD matures, you may have to pay an early withdrawal penalty.

If you withdraw before age 59 1/2 from a traditional IRA CD, you may be subject to pay an additional 10 percent tax on early distributions.

How to effectively use an IRA CD and avoid penalties

To effectively use an IRA CD, you should fund it with money you probably won’t need until after age 59 1/2. This will help you avoid an IRS additional tax.

“It could be a way to diversify a much larger IRA,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “An IRA that’s otherwise very heavily invested in risk assets, such as the stock market, can be diversified by parking a sum of money in a CD where you have Federal Deposit Insurance protection, guaranteed return within the context of a tax-advantaged investment.”

IRA CD vs. CD

Just like when you open a regular CD, which contains non-qualified funds, time horizon is very important. With a regular CD, when you deposit non-qualified money that has already been taxed, withdrawing your money too early may result in an early withdrawal penalty. If the funds are in a traditional IRA CD and you withdraw from the CD both before its term is up and before you turn 59 1/2, you may incur an early withdrawal penalty from your bank and a 10 percent early withdrawal tax.

Unlike a regular CD, contributions to a traditional IRA may be tax-deductible. But you can’t deduct contributions that you make to a Roth IRA CD.

IRA CD Risks

IRA CDs are just as safe as a regular CD containing non-qualified funds as long as they are at an FDIC-insured bank or a National Credit Union Administration (NCUA) institution, and as long as they don’t surpass the insurance limits. For instance, IRAs fall in the “Certain Retirement Account” category at the FDIC. The coverage limit is $250,000 per owner on IRAs at an FDIC bank in a deposit product, such as a savings account or a CD. At an NCUA credit union, the National Credit Union Share Insurance Fund (NCUSIF) covers an IRA separately and apart from insurance coverage on your other credit union accounts. The NCUSIF covers an IRA at a credit union up to an additional $250,000, according to the NCUA website.

Use the FDIC Electronic Deposit Insurance Estimator (EDIE) and contact your FDIC-insured bank to confirm that your account is insured. At a credit union, use the Share Insurance Estimator and contact your credit union to confirm your account meets insurance requirements.

Is an IRA CD better than an IRA savings account?

An IRA CD may have a higher APY than an IRA savings account. It also might be a more appropriate option because, for the most part, IRA funds are money that you don’t plan on touching.

On the other hand, if you’re over 59 1/2 and plan to actively make withdrawals out of your traditional IRA, then an IRA savings account might make more sense, rather than paying early withdrawal penalties – imposed at your bank – for withdrawing from the CD early.

Best IRA CD Rates of January 2019

Here are Bankrate’s picks for the best IRA CD rates. Be sure to consider interest rate and minimum deposit when choosing the best IRA for your goals.

TIAA Bank

APY: 1.90%-3.05% APY (3 months-5 years)

Minimum deposit: $5,000

TIAA Bank is a division of TIAA, FSB and is a part of TIAA’s Retail Financial Services business. In June 2018, TIAA announced the launch of TIAA Bank – which brought EverBank and TIAA Direct under a new name and brand. TIAA Bank is headquartered in Jacksonville, Florida. TIAA, FSB is a wholly owned affiliate of TIAA. The Yield Pledge CD promises that the yield on your CD when you open, renew or roll over your expiring CD will be in the top 5 percent of competitive accounts, according to the Bankrate’s survey data for that week.

Capital One

APY: 0.60%-3.10% APY (6 months-5 years)

Minimum deposit: $0

Capital One’s 360 IRA CDs have some of the most competitive APYs. Interest on these CDs is accrued daily and compounded monthly. 360 IRA CDs can be opened online and accounts can also be opened at the more than 30 Capital One Cafe locations across the U.S. Capital One 360 ranked highest in the J.D. Power 2018 U.S. Direct Banking Satisfaction Study.

Discover Bank

APY: 0.35%-3.10% APY (3 months-10 years)

Minimum deposit: $2,500

Discover Bank on its website boasts that it keeps things simple, has no gimmicks and most features have no fees. Interest on Discover Bank CDs are compounded daily and credited to your CD monthly. Discover Bank gives a nine-day grace period once your CD matures.

Ally Bank

APY: 0.75%-3.10% APY (3 months-5 years)

Minimum deposit: $25,000

Ally Bank offers more CD options than most direct banks. Ally Bank gives savers options with a High Yield CD and a Raise Your Rate CD. If you fund your IRA CD within 90 days, you’ll get its best rate for the term and balance on either the day you open or the day you fund the account. The interest on an Ally Bank CD is compounded daily. Ally Bank IRA CDs are available as a traditional, Roth and SEP IRA.

Learn more about IRA CDs:

Pros and cons of IRA CDs

Taking an RMD from IRA CD

Roth IRA CD withdrawal penalties