One of the ways that you can save for retirement is to open an IRA. An IRA is a tax-advantaged retirement account that allows you to build a nest egg through investments. There are any number of investments that can be held in an IRA, including Certificates of Deposit (CDs). When you have a CD in your IRA, the interest earned is either tax-deferred (Traditional IRA) or tax-free (Roth IRA). Many banks are starting to market CDs branded as IRA CDs.


An IRA CD is actually just like many other CDs. An IRA has a set term, and a set interest rate. However, these CDs often carry terms of 10 years, and require higher minimum deposits, usually as much as $5,000 or $10,000. In exchange for having a higher deposit, and for having a longer term, the bank often pays a higher rate of interest, so your yield is higher. Plus, since you are holding the CD in your IRA, you receive tax advantages on your earnings. In a regular CD, you have to pay taxes on your interest earnings, generally in the year you earned the interest.

Things to Remember about IRA CDs

In spite of the way that IRA CDs are marketed, it is important to realize that they are not anything special. Financial institutions market them as ideal cash products for your retirement account, but they are not different from any other CD. In some cases, you might be able to find “regular” CDs with the same terms — or even with better rates. Make sure that you shop around for CD rates and terms, and choose the best. Don’t pick something just because it is an “IRA” CD.

You can put any CD in your IRA. If you have enough money to get a good rate on a jumbo CD, you might be able to do even better than what banks are advertising as an IRA CD. It is also possible to look for brokered CDs and use those to help you increase the yield from CDs in your IRA.

CDs and Retirement

While you are adding CDs to your IRA, though, it is important to note that, while cash products can add security to your portfolio, the growth you experience will not be that great. CDs can increase your cash yield in a portfolio, but even a high yield CD does not offer very much growth at all. You might beat inflation, but that’s about it. As a result, it is important to add some asset class diversity to your IRA in order to help increase your overall growth potential.