An individual retirement account, or IRA, is one of the best tax-advantaged tools available to help you invest for retirement. IRAs can hold various types of assets, such as certificates of deposit, based on your risk tolerance.
Just like a standard CD, a CD within an IRA provides a guaranteed fixed return. Investing in a CD within a retirement account can benefit people who are close to retirement age, or already retired, because you know precisely how much your money will grow. It’s not, however, the best way to grow money you’re setting aside for decades in the future.
If you’re still years away from age 59 1/2 (the age that you can withdraw from an IRA without a tax penalty), you’ll likely be better off investing your IRA in higher-earning (but riskier) options, such as stocks, higher-yielding bonds and funds.
CNET’s picks for the top IRA CD rates*
| Bank | Minimum deposit | 1-year | 3-year | 5-year |
|---|---|---|---|---|
| Synchrony | $0 | 4.50% | 4.30% | 4.30% |
| Discover | $2,500 | 4.50% | 4.30% | 4.10% |
| Alliant | $1,000 | 4.65% | 4.45% | 4.35% |
| Bethpage Federal Credit Union | $50 | 5.00% | 3.75% | 4.00% |
| PenFed | $1,000 | 4.50% | 4.00% | 3.85% |
| Connexus | $5,000 | 4.51% | 3.71% | 3.51% |
| Ally | $0 | 4.25% | 4.25% | 4.25% |
| Citibank | $250 | 4.81% | 2.50% | 2.50% |
*Reflects annual percentage yields as of March 7, 2023.
More details on the best IRA CD rates
Synchrony Bank
- APY range for all terms: 2.25% to 5.00%
- Minimum deposit: $0
- Early withdrawal penalty: 90 to 365 days of simple interest
- About the bank: Synchrony is an online-only bank that takes advantage of limited overhead to offer attractive rates for deposit accounts. Transactions can be handled via its website or mobile app. Synchrony Bank also offers additional CD types like bump-up or no-penalty that provide more flexibility.
Discover
- APY range for all terms: 2.00% to 4.75%
- Minimum deposit: $2,500
- Early withdrawal penalty: 3 to 24 months of simple interest
- About the bank: Discover Bank is an online financial services company that offers products such as deposit accounts, credit cards, personal loans and student loans. It eliminated fees on deposit accounts in June 2019.
Alliant Credit Union
- APY range for all terms: 4.30% to 5.00%
- Minimum deposit: $1,000
- Early withdrawal penalty: 90 to 180 days of dividends
- Membership eligibility: Current or former employees of Alliant’s US partner businesses. Visit Alliant for a complete list of businesses.
Bethpage Federal Credit Union
- APY range for all terms: 3.75% to 5.00%
- Minimum deposit: $50
- Early withdrawal penalty: 90 to 180 days dividends on the principal amount withdrawn
- Membership eligibility: Membership is open to anyone who opens a savings account.
PenFed Credit Union
- APY range for all terms: 3.75% to 4.50%
- Minimum deposit: $1,000
- Early withdrawal penalty: 90 to 365 days of dividends earned
- Membership eligibility: PenFed is a credit union open to everyone. It offers a money market certificate that operates exactly like a CD.
Connexus Credit Union
- APY range for all terms: 3.51% to 4.85%
- Minimum deposit: $5,000
- Early withdrawal penalty: 90 to 365 days of dividends on amount withdrawn
- Membership eligibility: Membership is open to anyone based on criteria listed on Connexus.
Ally
- APY range for all terms: 2.00% to 5.00%
- Minimum deposit: $0
- Early withdrawal penalty: 60 to 150 days of interest
- About the bank: Ally is another online-only bank that offers a robust set of deposit products, loans and services. The bank also offers bump-up CDs (those that adjust to a higher APY if available) and no-penalty CDs. You can handle all of your banking needs through its mobile app or free via the Allpoint ATM network. There are no fees with any accounts, and 24/7 customer support via phone, chat or email.
Citigroup
- APY range for all terms: 0.10% to 4.81%
- Minimum deposit: $250
- Early withdrawal penalty: 90 to 180 days of simple interest
- About the bank: Citibank is the third-largest bank in the US. It is the retail banking arm of global financial services giant Citigroup. New York-based Citibank offers a full suite of financial products and services to its 200 million customers in 160 countries.
What is an IRA CD?
As the letters suggest, an IRA CD is a certificate of deposit held in an individual retirement account. Just like it is with a traditional CD, you’ll need to lock up the amount you invest for a specific term, between three months and 10 years. During that time, you’ll earn a fixed rate of return. If, however, you need to withdraw before the end of the term, you’ll incur a penalty which is typically a portion of your interest earned.
What’s more, the IRA that your CD will be held in contains additional restrictions for withdrawal. Because IRAs are meant to be used for retirement, you won’t be able to access your money without a 10% tax penalty on the amount you withdraw until age 59 1/2 (with some exceptions). Once you’ve reached that age, you can enjoy the tax benefits of the account.
Many banks and credit unions offer IRA CDs that can go in either a traditional or Roth IRA. A traditional IRA lets you save for retirement with pretax money that you pay taxes on when you withdraw. Roth IRAs are funded with money already taxed, and your withdrawals are tax-free after age 59 1/2 (you can withdraw contributions at any age after five years from account opening, but not earnings).
Combining a CD’s longer-term savings requirement with the stability of a fixed-rate APY creates a stable investment option. One benefit of using an IRA CD issued by a federally insured bank or credit union is fixed-rate growth that’s insured against loss up to $250,000 by the Federal Deposit Insurance Corporation or National Credit Union Administration.
Pros and cons of investing in IRA CDs
Pros
- An IRA offers a tax advantage for those who meet income requirements.
- IRA CDs allow investors to lock in a fixed APY. CDs at federally insured banks and credit unions protect balances against losses of up to $250,000 per person.
- Traditional IRA contributions are deducted from your annual income, but taxed when you withdraw your money.
- For Roth IRA contributions, you can’t deduct from your annual income, but you’re not taxed upon withdrawing the funds.
Cons
- These products are subject to income taxes and a 10% penalty if funds are withdrawn before the account owner reaches age 59 1/2, in addition to early withdrawal penalties, except under exemptions outlined by the IRS.
- Interest rates are locked in at the time of purchase which could represent a missed opportunity to capitalize on growth if interest rates continue to rise.
- Inflation continues to outpace the APYs currently paid, even on the highest-yielding IRA CDs.
Are IRA CDs a smart investment?
An IRA CD should be considered as a wise investment, especially for investors looking to diversify their portfolios. You should consult a qualified investment advisor to ensure that your specific investment goals are taken into consideration. In general, IRA CDs represent a low-risk investment option with a fixed rate of return that can be used to better plan your investment strategies.
How to invest in an IRA CD
- Compare rates, terms and conditions of IRA CDs from banks, credit unions and brokerage firms to find the most favorable option.
- Decide whether you’d like to open a traditional or Roth IRA CD.
- Complete an application. You’ll need to verify your identity with a government issued ID, Social Security number and account numbers used to fund the IRA CD.
- Deposit or transfer the required minimum amount.
FAQs
Can an IRA CD lose value?
IRA CDs purchased through a bank or credit union are insured by the FDIC or NCUA, respectively, for up to $250,000, per depositor. Any interest compounded is also covered by the insurance making it a low-risk investment. Withdrawing funds from an IRA CD before age 59 ½ or before the maturity date will result in income taxes and/or early withdrawal penalties that will reduce the value of the account.
What are alternatives to an IRA CD?
An IRA is a holding account that can contain a variety of assets. This includes stocks, bonds or mutual funds. The return on these asset classes fluctuates with market conditions. CDs are a safe investment asset with guaranteed returns. While guaranteed, the returns are typically lower when compared to what you may earn with other investments. If you’re looking for safe investments similar to CDs, there are additional safe savings accounts to consider, such as high-yield savings accounts or I bonds.
What is the difference between a traditional or Roth IRA CD?
With a traditional IRA CD, contributions can be deducted from your income, but you will be taxed when you withdraw the money.
With a Roth IRA CD, you can’t deduct contributions from your income, but you will not be taxed when you withdraw the money.
What is the difference between an IRA CD and a regular CD?
An IRA CD is a CD that is held within an individual retirement account. The money saved in an IRA CD is intended to be used in retirement and not withdrawn before the owner reaches age 59 ½.
A regular CD is a special savings account with a fixed APY in exchange for restricting access to deposited funds until a future date, or maturity date. CDs can be purchased with terms that range typically from three months to up to10 years. Once the maturity date has expired, you can withdraw the funds or renew the CD at the current interest rate offered by the bank or credit union.
Methodology
CNET Reviews CD rates based on the latest APY information from issuer websites. We evaluated CD rates from more than 50 banks, credit unions and financial companies. We selected the CDs with the highest APY for one-year terms from among the organizations we surveyed, and considered rates for shorter terms if one-year terms were identical or unavailable.
Banks surveyed include: Alliant Credit Union, Ally Bank, America First Credit Union, American Express National Bank, Axos Bank, Bank of America, Bank of the West, Bank5 Connect, Barclays, BMO Harris, Bread Savings, BrioDirect, Capital One, CFG Community Bank, Citizens Access, Colorado Federal Savings Bank, Connexus Credit Union, Consumers Credit Union, Credit One Bank, Discover Bank, First Internet Bank of Indiana, First Tech Federal Credit Union, FNBO Direct, GO2bank, Golden 1 Credit Union, HSBC Bank, Huntington Bank, Lake Michigan Credit Union, LendingClub Bank, Live Oak Bank, M&T Bank, Marcus by Goldman Sachs, Merrick Bank, Nationwide (by Axos), Navy Federal Credit Union, NBKC, OneUnited Bank, Pentagon Federal Credit Union, PNC, Popular Direct, PurePoint Financial, Quontic Bank, Rising Bank, Salem Five Direct, Sallie Mae Bank, Santander Bank, SchoolsFirst Federal Credit Union, Synchrony Bank, TAB Bank, TD Bank, TIAA Bank, Truist Bank, U.S. Bank, UFB Direct, Union Bank, USAA Bank, Vio Bank, and Wells Fargo.
This article includes some material that was previously published on NextAdvisor, a CNET Money sister site that was also owned by Red Ventures and which has merged with CNET Money. It has been edited and updated by CNET Money editors.
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