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If you’re looking for a guaranteed return on retirement funds, an IRA CD is a good option to consider.

IRA CDs are safe investments and appeal 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 will earn over the term of the IRA CD.

Investing in an IRA CD is relatively easy; it’s similar to purchasing a regular CD. But instead of transferring money into a CD from your checking or savings account, you would use funds in your IRA to buy a CD. Or, you could use money from another retirement account.

What is an IRA CD?

Most of us need to save more money to retire comfortably at a time when the American population is living longer.

One way to work toward that goal is to open an individual retirement account. The account, which acts as a basket for your investments, lets you enjoy certain tax benefits. Typically, you will open a traditional IRA or Roth IRA. Their tax advantages are different. Use Bankrate’s calculator to calculate your earnings for a Roth IRA and traditional IRA.

You get to pick what investments go into your IRA. You can use the money you contribute to your IRA to invest in stocks and bonds. You can also invest in CDs.

An IRA CD is an individual retirement account where your money is parked in a CD. A CD is a time-deposit account that pays an interest at a set rate in exchange for the saver agreeing to deposit cash for a set term. A CD term varies. You can find CD terms that range from three months to 10 years. Generally, CDs offer a higher rate than savings accounts because they are less liquid.

You may want to consider getting an IRA CD if your tolerance for risk is low and you’re looking for a guaranteed return to boost your retirement savings while enjoying tax advantages.

Not everyone is eligible for an IRA, however. Check with your tax adviser to make sure you’re able to contribute to an IRA.

Best IRA CD rates for July 2019

Bank APY Minimum deposit
Capital One 0.60%-2.50% (6 months-5 years) $0
TIAA Bank 2.15%-2.70% APY (3 months-5 years) $5,000
Discover Bank 0.75%-2.75% (3 months-5 years) $2,500
Ally Bank 0.35%-3.10% APY (3 months-10 years) $0
First Internet Bank 2.60%-2.78% (12 months-5 years) $1,000
Synchrony Bank 0.75%-2.80% (3 months-5 years) $2,000

What IRA CD is best for you depends on you and your goals. You will want to consider a high rate along with other factors, including the minimum deposit required and its maturity date. The rate the financial institution offers you changes by hold long it requires you to keep your money parked – some banks may offer more competitive rates on their 6-year IRA CDs, but not for their 6-month IRA CDs, for example. Consider your time horizon when deciding what’s best for you.

Best IRA CD rates: Bank details

Here are Bankrate’s picks for the best IRA CD rates.

Capital One

APY: 0.60%-2.50% APY (6 months-5 years)

Minimum deposit: $0

Capital One’s 360 IRA CDs offer some of the most competitive APYs. Interest on these CDs is accrued daily and compounded monthly. You can open 360 IRA CDs online and at 37 Capital One Cafe locations in select cities across the country. Capital One’s headquarters are in McLean, Virginia.

TIAA Bank

APY: 2.15%-2.70% 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 – an effort that 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 bank’s Yield Pledge promises that the yield on your CD will be in the top 5 percent of competitive accounts when you open, renew or roll over your expiring CD.

Discover Bank

APY: 0.35%-2.70% APY (3 months-10 years)

Minimum deposit: $2,500

Discover Bank boasts on its website that it “says seeya to gimmicks, gotchas and fees.” In June, the bank backed up the claim by eliminating fees on its deposit products. 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. Its headquarters are in Greenwood, Delaware.

Ally Bank

APY: 0.75%-2.75% APY (3 months-5 years)

Minimum deposit: None, but you may get a higher rate if you deposit more.

Ally Bank is an online-only bank that 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. Interest on an Ally Bank CD compounds daily. Ally Bank IRA CDs are available as a traditional, Roth and SEP IRA.

First Internet Bank

APY: 2.60%-2.78% (12 months-5 years)

Minimum deposit: $1,000

First Internet Bank is an online-only FDIC-insured institution that launched in 1999 as a branchless bank. Its headquarters are in Fishers, Indiana.

First Internet Bank IRAs are available as a traditional, Roth and SEP IRA. They are available nationwide, but they are only available online. Interest on IRA CDs are compounded and credited on a monthly basis.

Synchrony Bank

APY: 0.75%-2.80% (3 months-5 years)

Minimum deposit: $2,000

Synchrony Bank, formerly known as GE Capital Bank, is a subsidiary of Synchrony Financial. It offers some of the best rates on CDs. At Synchrony Bank, you can open Roth IRAs or traditional IRAs.

You cannot open IRA CDs at branches (there aren’t any). You also can’t open them online. Instead, you will need to call Synchrony Bank to open an IRA CD. Its corporate headquarters are based in Draper, Utah.

Who are IRA CDs best for?

IRA CDs are worth considering if you’re looking to diversify your portfolio. You may have other retirement accounts with funds invested in areas where a loss of principal is possible, such as the stock market or exchange-traded funds.

That is also why IRA CDs are a good option for someone with a low-risk tolerance. If you don’t like surprises and want to know exactly how much interest the investment will make, a fixed-rate IRA CD provides that certainty. As long as you hold the IRA CD to its maturity, you will earn the expected interest on the IRA CD. It’s also worth considering adding to your portfolio if you’re nearing retirement.

At a bank, Federal Deposit Insurance Corp. insurance covers up to $250,000 for the combined balance of all self-directed retirement accounts owned by the same person in the same insured bank.

At a credit union, the National Credit Union Share Insurance Fund covers up to $250,000. The coverage is separate from insurance coverage on your other credit union accounts.

Where can you buy an IRA CD?

Your IRA is a basket for your investments, and what you can invest in depends on the provider. Not all financial institutions offer CD IRAs, so you will need to find one that does.

Make sure you shop around. Look for institutions that offer competitive rates, and pay attention to minimum balance requirements.

When choosing an IRA CD, keep your time horizon top of mind. The biggest risk with a CD is accessing your money before the CD’s term ends. Generally, institutions will charge you a penalty if you withdraw money before the CD’s maturity date.

Overall, CDs are a safe place to stash your money. They are insured up to $250,000 at banks by the FDIC and at credit unions by the NCUA.

Pros and cons of investing in an IRA CD

Before opening an IRA CD, weigh the pros and cons to see if it’s the right product for you.

The pros of investing in an IRA CD include:

  • A guaranteed return on your investment (as long as you don’t withdraw from your CD before it matures).
  • Your money is insured up to $250,000 as long it is held at an FDIC-insured bank or NCUA-insured credit union.
  • Investing in an IRA CD is more straight-forward than investing in stocks or bonds.
  • You won’t have to worry about fees unless you’re penalized for tapping into your account before it matures.

The cons of investing in an IRA CD include:

  • If you’re younger, you may want to invest in something with the potential for a higher return.
  • The rate you earn may not keep up with inflation.

What are the contribution limits for an IRA?

The IRS limits how much you can contribute to your IRA per year.

If you’re under 50, you can contribute up to $6,000 in a traditional or Roth IRA in 2019. If you are 50 and older, you can contribute up to $7,000.

If you’re older than 70 1/2, you can no longer contribute to a traditional IRA; however, you can still make contributions to a Roth IRA as long as you earn taxable compensation in the year you make the contribution.

Are IRA CDs also subject to the same contribution limits?

Yes. Just like any IRA, the IRS limits how much you can contribute to an IRA CD per year.

People under 50 can contribute up to $6,000 in a traditional or Roth IRA in 2019. Those 50 and older can contribute up to $7,000.

Is an IRA CD tax-deductible?

You may be able to deduct some or all of your contributions to a traditional IRA. There are exceptions. For instance, if you exceed a certain income, your deduction might be limited.

Roth IRA contributions aren’t deductible. You don’t report the Roth IRA contributions on your tax return either.

Can I transfer an IRA CD to another bank?

Yes, you can. A trustee-to-trustee transfer is one way to move your IRA CD from one bank to another. Here, you won’t touch the money: Your bank with the maturing CD will send money to your new bank provider. Before moving your money, make sure that your CD has matured in order to avoid potential early withdrawal penalties.

If you are nearing retirement and want your money to be more liquid, consider transferring the IRA CD to an IRA savings account or to an IRA money market account instead of 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?

Like any other CD, you will typically pay a penalty if you withdraw your money before an IRA CD matures.

Also, 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. The IRS will make exceptions. If the IRA CD term expires within a traditional IRA, you can keep those funds in the IRA but use them to make other investments.

How to effectively use an IRA CD and avoid penalties

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

If your IRA is heavily invested in risk assets, parking money in an IRA CD can help you diversify your portfolio. With an IRA CD, you will get a guaranteed return and tax benefits.

IRA CD vs. CD

Just like when you open a regular CD, your time horizon is very important when choosing an IRA CD. With a regular CD, 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, as long as they are opened at an FDIC-insured bank or a NCUA credit union and 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 a credit union, the National Credit Union Share Insurance Fund covers an IRA separately from insurance coverage on your other credit union accounts. The NCUSIF covers an IRA at a credit union up to an additional $250,000.

Use the FDIC Electronic Deposit Insurance Estimator 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 consist of 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.