Getting an IRA CD is generally best to consider if you’re looking for solid, guaranteed returns on retirement funds. Unlike other types of investments, they don’t come with as much risk. Online banks have some of the best IRA CD rates.
Although IRA CDs provide guaranteed returns, stocks and other investment options can provide much higher yields. An IRA CD should, therefore, only make up a modest portion of anyone’s investment portfolio. In fact, if you’re a younger investor, you might wish to skip CDs entirely and allocate all of your IRA to higher-yielding choices like stock mutual funds.
|Best IRA CD interest rates | May 2019|
• 1-year: 2.65% APY
Connexus Credit Union
• 1-year: 2.50% APY
Capital One 360
• 1-year: 2.70% APY
• 1-year: 2.80% APY
• 1-year: 2.75% APY
Alliant Credit Union
• 1-year: 2.70% APY
» Want to see more CD options? Check out our list of the best CD rates overall
What is an IRA CD?
A certificate of deposit, or CD, is a type of savings account that requires people to put money away for a set period of time. That’s called “term length,” and it generally ranges from three months to five years. Longer terms tend to earn higher returns.
An IRA, or individual retirement account, is a tax-advantaged account that can hold different types of investments, including stocks, bonds and CDs.
An IRA CD is a CD that serves as an investment in an individual retirement account plan. You can generally open an IRA plan at a bank or brokerage that holds multiple CDs or other interest-bearing accounts. An IRA is usually traditional or Roth, which have different tax implications.
(See more details about IRAs.)
How do IRA CD rates work?
IRA CDs earn interest just like standard CDs. Rates are generally fixed and quoted as an annual percentage yield, or APY, which shows the amount an account earns in one year, including compound interest. The higher the APY, the more your money will grow.
» See what CDs can earn with our CD calculator
When should I get an IRA CD?
IRA CDs tend to be a decent option for people looking for guaranteed returns on their retirement savings, especially if retirement is only a few years away. These CDs are useful for those who can’t stomach the risks that come with stocks or bonds. Money in a CD is federally insured up to $250,000.
Younger investors can afford to take more risk with their investments, so they wouldn’t want to tie up retirement funds in CDs only, if at all. Current CD rates don’t compare to the return that investments can make in the long term. To check out higher-yielding options, see our list of best IRA brokers.
How should I fund an IRA CD?
You can transfer money from another retirement account, such as an IRA or 401(k), or add new money. If you choose the second option, keep in mind that IRAs have annual contribution limits: $5,500 if you’re under 50 and $6,500 for those 50 or older. These are the combined limits for all IRAs you own.
What happens if I withdraw early?
You might face two penalties. Pulling money out of a CD before its term expires will likely result in an early withdrawal fee, which is typically a percentage of the interest earned. You could also face an IRS tax penalty.
This penalty could occur if you withdraw the money at the end of its term and deposit it into a non-retirement account without meeting a few requirements that qualify you for IRA distributions. For either a traditional or Roth IRA, you have to be older than 59 1/2, or you have to use the money for specific purchases, such as buying a home or funding higher education (see other exceptions). If it’s a Roth IRA, you can withdraw your contributions at any time without an IRS penalty.
Is there a difference between an IRA offered at a bank and one at a brokerage?
Generally, yes. Banks, especially those that don’t have investing accounts, may provide IRAs with limited choices. For example, a bank IRA might offer only CDs and money markets. IRAs at brokerages can hold a wider variety of investments, including stocks and bonds, which tend to provide higher returns over the long term.
Best IRA CD rates May 2019
|Financial institution||APY||Term||Minimum deposit|
|Alliant Credit Union||2.70%-3.00%||1 - 5 years||$1,000|
|Ally Bank||0.75%-3.00% APY||3 months - 5 years||None|
|Capital One 360||0.60% - 3.10%||6 months - 5 years||None|
|Synchrony Bank||0.75% - 3.10%||3 months - 5 years||$2,000|
|Discover Bank||0.35% - 3.10%||3 months - 10 years||$2,500|
|Connexus Credit Union||2.50% - 3.00%||1 - 5 years||$5,000
We featured easy-to-join financial institutions that we’ve reviewed with the highest CD rates available for CDs designated for IRAs. Higher rates might be available elsewhere.