The Best IRA CD Rates
An IRA CD combines the tax benefits of an Individual Retirement Account (IRA) with the fixed returns of a Certificate of Deposit (CD).
Written by
Matthew Levy
After graduating with a Bachelor of Science in Economics from the University of Victoria in 2010, Matthew developed a passion for helping clients meet their financial freedom through strong, risk-adjusted portfolios. Matthew also undertook and completed his CFA® charter in 2015, a rigorous professional credential program promoting the highest standards of education, ethics, and professional excellence in the investment profession.
Last Update on Oct 2, 2023
Table of Contents
Connexus Credit Union IRA Certificates
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Why We Picked It?
Connexus Credit Union is based in Wisconsin and stands out with compelling IRA CD rates, making it a top pick. Among its offerings, the 15-month CD with a 5.25% APY is extremely attractive. Connexus offerings have a promising return on investments, but they also have a track record of consistent performance and customer satisfaction. Their commitment to their clients’ financial literacy is a testament to their dedication to their members.
Pros:
- Competitive APYs.
- Multiple term options are available.
- Jumbo IRA certificates on offer.
Cons:
- No online opening for IRA Certificates.
- Mandatory membership.
- High minimum opening deposit.
Additional Details
Customer Support/Unique Features:
The company takes pride in its strong customer support structure. Members receive prompt responses, knowledgeable staff, and an overall supportive banking experience. There is also a range of online resources and tools to assist members in managing their accounts to the best of their ability. One of the unique features is the Connexus Association’s financial literacy education to promote smart financial habits and provide an avenue for anyone in the U.S. to become a member by making a small donation.
Any Additional Details:
A minimum deposit of $5,000 is needed to receive the IRA CD rates mentioned above. And while membership is required, it’s relatively straightforward and cheap – any U.S. resident can join by donating $5 to the Connexus Association. The rates and details mentioned are subject to change.
First National Bank of America IRA Certificates of Deposit
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Why We Picked It?
First National Bank of America is a Michigan-based institution, and offers IRA CD rates that compete with the best, positioning it as a top choice for investors. However, note that opening a Traditional or Roth IRA CD requires visiting a branch in person. This could be a limitation as they only have branches in East Lansing, Grand Rapids, and Traverse City, but there’s a benefit for residents in those areas. They get the flexibility to open an IRA CD with a term ranging from 1 to 60 months, as opposed to other more restrictive terms.
Pros:
- Competitive APYs range from 4.55% to 5.00%.
- Reasonable minimum opening deposit of $1,000.
- Availability of six- and seven-year CD terms.
Cons:
- Must open the IRA CD at a physical branch location.
- Only standard annual terms are available for those outside Michigan.
- Customer service is not available on weekends.
- Checking and specific savings accounts are exclusive to Michigan residents.
Additional Details
Customer Support/Unique Features:
First National Bank of America emphasizes a convenient banking experience. They have incorporated online access and a mobile app, providing things like mobile check deposit and text banking for quick access to details like account balances and transaction histories. For those needing ATMs, the bank has a partnership with Allpoint, with access to over 55,000 surcharge-free ATMs across the country. Although the bank boasts 3 branch locations, customers can always call their helpline, which is available on weekdays for other assistance.
Any Additional Details:
First National Bank of America started in 1955 and has over $2.6 billion in assets. It is still family-owned and primarily serves Michigan residents. However, their CDs and high-yield savings accounts are accessible to consumers nationwide. Refer to their website for the most recent terms before making an investment decision.
Discover Roth/Traditional IRA Certificates of Deposit
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Why We Picked It?
Discover has a reputation as an online bank that consistently delivers superior bank accounts with minimal fees and attractive rates. Their Roth and Traditional IRA CD rates begin at 2.00% for a 3-month term and can reach up to 5.00% for an 18-month term. There are also competitive rates for terms of 2 to 10 years.
One added advantage of Discover is the online process for opening an IRA CD. There’s no need for an in-person branch visit, after initiating the online application, Discover sends the necessary paperwork for your signature.
Pros:
- Attractive Annual Percentage Yields (APYs)
- Facilitates online account opening
- A diverse term range from 3 months to 10 years
Cons:
- The initial deposit requirement is relatively high
- Short-term CD rates may not be as competitive as some competitors
Additional Details
Customer Support/Unique Features:
Although there is a lack of physical branches, there are 415,000 ATMs accessible nationwide. In addition, customers benefit from their mobile app, which is highly rated and allows for easy account management, with features like mobile check deposits. One clear advantage of Discover Bank is its fee structure – or lack of one. There is zero monthly maintenance or online bill payment fees to start, and Discover charges zero fees for many other services, unlike many other banking institutions.
Any Additional Details:
While Discover’s Roth IRA CDs are funded with post-tax dollars and allow for tax-free earnings, the Traditional IRA CDs use pre-tax money and have tax-deferred earnings. In addition, Discover has FDIC insurance on its CD amounts.
NASA Federal Credit Union IRA Certificate of Deposit
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Why We Picked It?
NASA Federal Credit Union offers highly competitive IRA CD rates, peaking at an impressive 5.55%. They offer a variety of unique IRA CDs, that many institutions simply can’t match.
For instance, they provide a bump-rate IRA CD, which allows account holders to escalate their interest rate once during the term of the CD. They also cater to younger individuals with their Early Savers IRA CD, targeting those below the age of 24. For those with regular contributions, they also offer the add-on IRA CD. Membership isn’t exclusive to those affiliated with space programs; they’ve broadened their reach to invite members from across the nation.
Pros:
- High APYs: With rates as high as 5.55%, they are clearly competitive in the market.
- Online Accessibility: The convenience of online accounts is excellent.
- Diverse IRA CD Options: The choices are varied and unique, from bump-rate to early saver CDs.
Cons:
- Membership Requirement: While they offer wide access, one still has to be a member to utilize their financial products.
- High Minimum Deposits for Some CDs: Some of their CD options require a significant initial deposit of up to $10,000
Additional Details
Customer Support/Unique Features:
A standout feature is the NASA FCU’s initiative to cover the first-year membership for those unaffiliated with NASA. By paying your membership to the National Space Society (NSS), anyone nationwide can take advantage of their offerings.
Any Additional Details:
There are many rate structures and specialized CDs to choose from. Standard rates range from 4.20% to 5.55%, with 6 to 60-month term lengths. The minimum deposits vary, with some as low as $50 and others up to $10,000.
The special CD categories – Early Savers, Add-On, and Bump Rate – further enrich their offerings, ensuring there’s something tailored for various financial planning needs.
Bethpage Federal Credit Union IRA Certificate of Deposit
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Why We Picked It?
Bethpage Federal Credit Union is recognized as one of the top credit unions and also a prime institution for IRA CD rates. Their 3-month IRA CD offers a competitive 2.25%, showing value even for shorter-term investments. The 12-month CD stands with a 5.00% APY, more than some of their longer-term options.
Pros:
- High APYs: Their rates, especially the 12-month CD at 5.00% APY, are highly competitive in the market.
- Low Opening Deposits: With just $50, one can open an IRA CD, making it accessible to many investors.
- Bump-up CD Option: The 39-month “Bump Up” IRA certificate lets account holders increase their dividend rate once during the term, providing flexibility in a changing market environment.
Cons:
- Membership Requirement: To access their IRA CD rates, one must become a credit union member.
- Savings Account Prerequisite: A savings account must be opened to establish membership.
Additional Details
Customer Support/Unique Features:
The company has modern conveniences not available everywhere. Members can schedule virtual meetings via phone or video with credit union staff, receiving guidance without needing to visit a branch. The mobile app is highly rated and includes features like mobile check deposit, budgeting tools, and online bill payments. There are also 30 branch locations spread across Long Island and New York City for those looking for in-person interactions. Membership in the CO-OP Shared Branch Network allows for access to a wide array of credit unions across the country bearing the CU Service Center logo.
Any Additional Details:
Bethpage has much more than just IRA CDs. They have a full range of financial products, like credit cards, mortgage loans, home equity lines of credit, auto loans, personal loans, insurance, business accounts, and services. Their commitment to education is a cornerstone of the business, particularly for younger generations, as they offer accounts specifically tailored for teens and young adults. Anyone can become a member simply by opening a savings account with a minimum deposit of $5.
What Is An IRA CD?
An IRA CD combines the features of an Individual Retirement Account (IRA) with the stability of a Certificate of Deposit (CD). It’s a retirement savings tool offering a fixed interest rate over a specified term, much like a traditional CD. However, it operates within the tax-advantaged structure of an IRA, which makes it uniquely suited for retirement planning.
The major benefit of an IRA CD lies in its two-fold protection. Firstly, it is federally insured up to $250,000 by the FDIC (or the NCUA for credit unions). This ensures that even if the issuing financial institution fails, the funds in the IRA CD are secured. Secondly, investors can count on a fixed interest rate, which means they know exactly what to expect in returns.
How IRA CDs Function
There are two primary types of IRA CDs: Traditional IRA CDs and Roth IRA CDs.
- Traditional IRA CDs: Contributions to this type of IRA CD may be tax-deductible. The earnings will grow tax-deferred, and taxes are only paid upon withdrawal, typically during retirement.
- Roth IRA CDs: Contributions to this type of IRA are made with after-tax dollars, meaning no upfront tax deduction. However, the significant advantage is that qualified withdrawals, including the earnings, are tax-free.
Opening an IRA CD:
- Deposit Methods: You can fund an IRA CD through direct transfers from a bank account, rollovers from another IRA, or convert assets from a Traditional IRA to a Roth IRA. Some institutions may also allow mailed checks.
- Contribution Limits: For 2023, the total contributions to all of your Traditional and Roth IRAs cannot be more than $6,500 ($7,500 if you’re age 50 or older) or your taxable income for the year if your income was less than this amount. The IRS can update these limits annually, so stay informed.
Before opening an IRA CD, consult a financial advisor and do your due diligence so ensure it’s the right option for your retirement goals and current financial situation.
Strategies To Identify Top IRA CD Rates
Identifying the best IRA CD rates takes some work, but here are a few key strategies:
- Deposit Amount: Some institutions offer higher interest rates for larger deposits, such as with jumbo CDs. Consider pooling more funds into your IRA CD if you want a rate boost.
- Term Length: In general, a longer-term lock-in period will lead to higher rates, but balance this with your liquidity needs.
- Daily Compounding: Compounding is when your interest returns earn additional interest. Look for IRA CDs that compound interest daily rather than monthly or annually to maximize your total return.
Additionally, always shop around. Different financial institutions offer varying rates. Online banks or credit unions, for example, might offer more competitive rates than traditional brick-and-mortar banks due to lower overhead costs.
Pros and Cons of Using IRA CDs
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Who Should Consider IRA CDs?
Planning retirement investments involves unique goals and risk tolerances for each individual or family. IRA CDs can play a role for many types of investors:
- Nearing Retirement: As individuals approach retirement, the focus often shifts from higher-return, high-risk investments to more stable and predictable ones. An unexpected market downturn can be catastrophic for someone on the cusp of retiring. IRA CDs become more attractive in these scenarios, providing assurance of principal protection and fixed-interest earnings.
- Conservative Investment Stance: Not everyone is comfortable with volatility. For more conservative people, IRA CDs offer an appealing mix of safety and predictable growth.
- Diversification: IRA CDs may not always have the highest returns, but they can be great for part of a diversified portfolio. Steady interest rates can buffer your volatile investments, providing stability and reducing overall risk.
While IRA CDs might not be for everyone, they are reliable for those seeking peace of mind and safeguarding against market unpredictability.
Rolling Over: From IRA CD To Regular IRA
Shifting funds from an IRA CD to a Traditional or Roth IRA can be strategic. Here are some simplified steps to doing so:
- Select Your Destination IRA: Decide whether you’re rolling over to a Traditional or Roth IRA. Each has its own tax implications nad benefits.
- Open a New IRA Account: If you don’t already have one, open the desired IRA account with your bank or brokerage.
- Initiate the Rollover: Contact the financial institution where your IRA CD is held. They can guide you on initiating the rollover process, which can typically be transferred directly.
- Ensure Tax Compliance: Make sure the rollover is done in a manner that avoids unnecessary tax penalties. Typically, you’ll want the funds to be transferred directly between teh institutions, termed as a “trustee-to-trustee” transfer.
- Select Your Investments: Once the funds are in your new IRA, decide on how to invest them.
Rolling over your IRA CD to a Regular IRA is not as complicated as it seems, as long as you approach it systematically. Consult with a financial advisor to ensure the rollover is done correctly and aligns with your retirement goals.
Contrasting CDs And IRAs
When it comes to managing and growing wealth, understanding the differences between financial instruments is important. Here are some differences between a CD and an IRA.
- Certificate of Deposit (CD): A CD is a type of time deposit offered by banks and credit unions with a fixed term and a fixed interest rate. They are designed primarily for short- to medium-term savings. The fixed return lets investors know exactly how much they will receive at maturity.
- Individual Retirement Accounts (IRAs): An IRA is a tax-advantaged account designed to help individuals save for retirement. There are different types, like the Traditional and Roth IRAs, each with its own tax implications and rules. The purpose of an IRA is to be a long-term retirement savings vehicle. Assets held within IRAs can be diversified across various investments, including stocks, bonds, mutual funds, and more.
Decision-making: CD vs. IRA
There are a few decisions to make between a CD and an IRA, mostly to do with your financial objectives and timelines.
- Immediate Accessibility – CDs: If you have a financial goal that’s within the next few years, CDs offer a secure way of growing your savings. Their fixed terms ensure your money isn’t tied up indefinitely, allowing for planned financial objectives.
- Long-Term Retirement Contributions – IRAs: An IRA is likely preferable for goals that stretch decades, like retirement. Given the potential for diversified investments within an IRA, the account is better suited for the long-term part of your financial investments.
While CDs have predictability and security, IRAs are designed for longer-term investing, aiming to maximize returns and provide a comfortable nest egg for retirement.
Frequently Asked Questions (FAQs)
What Exactly Is An IRA CD?
An IRA CD combines the features of both an IRA (Individual Retirement Account) and a CD (Certificate of Deposit). It allows individuals to invest their retirement savings in a CD within the framework of an IRA, providing the tax benefits of an IRA and the fixed returns of a CD.
How Do Traditional IRA CDs Differ From Roth IRA CDs?
The primary distinction lies in their tax treatment. Contributions to Traditional IRA CDs are often tax-deductible upfront, but withdrawals in retirement are taxed. On the other hand, Roth IRA CDs involve post-tax contributions, meaning withdrawals during retirement are generally tax-free.
Are There Penalties For Early Withdrawals From An IRA CD?
Yes, just like with regular CDs, if you withdraw funds from an IRA CD before its maturity date, you might face penalties from the bank. Additionally, if you’re under the age of 59½, the IRS may impose penalties and taxes on the withdrawn amount.
How Are IRA CD Rates Determined?
IRA CD rates are typically determined by factors like the deposit amount, term length, and the current interest rate environment. It’s always a good idea to shop around and compare rates from different banks and credit unions.
Is My Money Safe In An IRA CD?
Absolutely. IRA CDs are usually offered by FDIC-insured banks or NCUA-insured credit unions, which means your investments are insured up to $250,000.
Can I Roll Over My IRA CD Into A Regular IRA?
Yes, rolling over from an IRA CD to a regular IRA (Traditional or Roth) is feasible. It’s essential to follow the correct steps and consult with a financial advisor to ensure the process is handled correctly and avoid potential tax implications.
How Does An IRA CD Compare With Other Retirement Investment Options?
IRA CDs offer a safer, fixed return, making them less risky than investments like stocks or mutual funds. However, this safety often comes at the cost of potentially lower returns than riskier investment vehicles. An IRA CD can be an excellent option for those prioritizing capital preservation.
Matthew Levy
Author
After graduating with a Bachelor of Science in Economics from the University of Victoria in 2010, Matthew developed a passion for helping clients meet their financial freedom through strong, risk-adjusted portfolios. Matthew also undertook and completed his CFA® charter in 2015, a rigorous professional credential program promoting the highest standards of education, ethics, and professional excellence in the investment profession.
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