Everything You Need to Know about an IRA CD

Jun 07, 2023 By Triston Martin

An individual retirement account, sometimes known as an IRA, is a retirement savings vehicle that allows purchasing various investments, including stocks, bonds, and mutual funds. An individual retirement account (IRA) invested in certificates of deposit is called an IRA CD. CDs in an IRA typically receive a predetermined annual percentage yield (APY). However, the annual percentage yield (APY) on an IRA CD may be changeable at various institutions.

IRA certificates of deposit can be opened with brokerage firms, credit unions, and banks. You can open a standard or a Roth individual retirement account (IRA). The primary distinction between these two types of IRA accounts is when taxes are paid.

Pros and Cons of IRA CD

Anytime consider investing money in something, you must weigh the potential benefits and drawbacks. Here's a look at opening an IRA CD's main pros and cons.


Fixed-rate certificates of deposit offer assured returns. Due to market volatility, investing may be nerve-wracking. However, certificates of deposit (CDs) are often fixed-rate investments, so you know how much you will earn upfront. CDs may indeed vary, though.

Savings rates at competitive banks have increased due to the recent rate rises by the Federal Reserve, which have increased the cost of borrowing money.

There is a $250,000 limit per depositor, each insured bank or credit union, per account ownership type for FDIC-insured certificates of deposit. Certain retirement accounts, single accounts, and joint accounts are only a few examples of the many types of ownership structures.

An Individual Retirement Account Certificate of Deposit (CD) provides a low-hassle alternative to stock trading and professional portfolio management. (Withdrawals made before age 5912 are subject to a penalty, as are withdrawals made before retirement age.)

Choose your duration. You have a lot of flexibility with IRA CDs because their durations can range from three months to ten years.

A CD ladder is possible. The term "CD ladder" refers to a savings plan in which many certificates of various maturities are purchased. You may take advantage of greater rates on longer-term CDs while still having access to cash through the shorter-term CDs.


The prospect for financial gain is low. Even though CD rates are on the rise, they still can't compare to the gain you can achieve by taking on greater risk and investing in the market. Pepper explains that there is a trade-off between the safety and security of a CD investment and the possibility of earning a larger return on other investments that may be riskier.

We have secured your funds. Avoid missing potential gains by investing in a low-yielding long-term IRA CD.

The cost of cashing out early. You may lose some or all of your earnings if you withdraw from your IRA CD before the term ends. In addition, there is a 10% surcharge for those younger than 59 and 12 years old.

There is a risk that growth will need to be increased to keep up with inflation. Your buying power may decrease if your investment returns are lower than the inflation rate.

How to Open an IRA CD

IRA certificates of deposit are available at many financial institutions. A certificate of deposit may be known as a share certificate in a credit union. With regard to IRA CDs, you primarily have two options:

Create a new individual retirement account (IRA) CD and put money in it. Start a new account by shopping for the cheapest rates and depositing cash. Transfer money from your current IRA. You can open an IRA CD by transferring funds from an existing IRA. To avoid paying taxes twice, it's important to roll over your IRA the right way.

Certificates of deposit might be another option for your retirement savings. To find out if certificates of deposit (CDs) may be held in your current retirement account and what your alternatives are for doing so, you should consult with your investment business or financial counselor. Your financial adviser may also advise you on whether or not certificates of deposit (CDs) are appropriate for your investment needs and the amount of your portfolio you should allocate to them.

The Summing Up

Individual Retirement Account CDs provide an option for investors seeking a less volatile and more stress-free way to save for retirement. IRA CDs aren't risky investments, even in a high-interest rate climate. However, these high-yield savings vehicles may become more appealing when interest rates rise, particularly to individuals near retirement age.

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