Roth IRA & Certificates of Deposit
Published in General
Can you invest your Roth IRA in something safe, like a certificate of deposit?
Yes you can, but it’s a little tricky because you can’t buy certificates of deposit (CD) through a typical Roth IRA brokerage account. What you’ll need to do it open an IRS CD with the institution you want the CD from. So, the first step is to review the best certificate of deposit rates and look at their IRA CD offerings. The highest regular CD rate won’t necessarily guarantee a high IRA CD. The banks know that you get favorable tax status so the rates may be lower.
A certificate of deposit is a type of deposit account where you are guaranteed a rate of return over a specified period of time, known as the term. It differs from other accounts because the rate is guaranteed, whereas for many types of accounts the rate is not guaranteed. In return for this guarantee, your money is locked into that account until the maturity of the CD. If you need your funds before the CD matures, you will often have to pay a penalty. One of the benefits of having your IRA in CDs is that you probably won’t try to access the funds early because you would have to pay an early withdrawal penalty on the IRA as well.
Check to see what the rules are with the IRA CD at the bank you’ve selected, they should be able to explain how everything works.
