By Gayle SatoWhat Is an IRA CD?
Quick Answer
An IRA CD combines the stability and relatively high yield of a certificate of deposit (CD) savings account with the tax benefits of an IRA. Retirement savers who want reliable savings and predictable income may be willing to trade the potential upsides of growth investing for the modest gains of an IRA CD.
An IRA CD is a certificate of deposit (CD) that's held inside an individual retirement account (IRA). An IRA CD offers the high interest rate and stability of a CD combined with the tax advantages of an IRA. For retirees, people approaching retirement or any retirement saver looking to add stability to their portfolio, an IRA CD may be an option worth considering.
Of course, IRA CDs have their pros and cons, especially if you have a long way to go before retirement, or if saving for retirement isn't a priority for you. To understand more about IRA CDs and how they might (or might not) fit with your savings and retirement goals, read on.
How Do IRA CDs Work?
An IRA CD combines the tax benefits (and restrictions) of a traditional or Roth IRA with the predictability and relatively high interest rate of a CD. To understand these two aspects of an IRA CD, here's a quick breakdown.
What Is an IRA?
An IRA is a tax-advantaged retirement account. The tax savings you get from an IRA can help you contribute more money (thanks to tax-deductible traditional IRA contributions), keep your money invested (versus withdrawing it to pay taxes on gains or interest) or use more of it in retirement (if you have tax-free Roth distributions), depending on which type of IRA you have. There are two main types of IRAs, traditional and Roth:
- Traditional IRA contributions are tax deductible and earnings are tax-deferred, but you'll pay regular income taxes on your full withdrawals when you retire.
- Roth IRA contributions are not tax deductible, but you don't pay income taxes on your earnings or your withdrawals when you retire.
Learn more: What's the Difference Between a CD and an IRA?
What Is a CD?
A CD is a savings account that pays a fixed amount of interest over a set period of time. A 12-month CD might pay 4.5% interest for a year, for example. Interest rates on CDs, expressed as annual percentage yields (APYs), are generally higher than for regular savings accounts—but an early withdrawal penalty typically applies if you decide to withdraw your funds before your agreed-upon maturity date. The penalty often means forfeiting weeks' or months' worth of interest.
IRA CD Contribution Limits
If you open or contribute new money to an IRA CD, you're limited to $7,000 in 2025, $8,000 if you're age 50 or older. This contribution limit applies to both Roth and traditional IRAs, and to any combination of contributions you make—for example, $3,000 to a traditional IRA and $4,000 to a Roth. Your contribution also can't exceed your taxable income for the year.
Contribution limits don't apply to funds you roll over from an existing IRA to an IRA CD. An IRA rollover lets you transfer funds from one IRA to another within 60 days without a tax consequence. If you do an IRA rollover, be sure to follow IRS guidelines to avoid an early withdrawal penalty and taxes.
You may also be able to invest in a CD within your existing IRA account. Check with your IRA provider to learn more about your options.
Learn more: What Are the IRA Contribution Limits?
Pros and Cons of IRA CDs
IRA CDs are a reliable, low-risk alternative for retirement savers, but they aren't right for every situation. If you're a retiree or are approaching retirement, IRA CDs can provide stability and lower risk. If you have decades to go before you retire, consider whether the growth potential of stocks, bonds and similar investments might outweigh the emotional (and financial) ups and downs of navigating volatile markets.
Here are the basic IRA CD pros and cons to consider:
Pros
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Tax advantages: IRA CDs offer the same tax advantages as traditional or Roth IRAs, saving you money on taxes and allowing more of your money to grow.
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Less risk: The value of growth assets like stocks and exchange-traded funds (ETFs) in an IRA can rise and fall with the market. Your money won't lose value in an IRA CD.
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Reliable income: With a CD, you know upfront how much interest you'll earn and for how long.
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Insured funds: IRA CDs from banks and credit unions (and some brokerages) are insured up to $250,000 per account holder and account type by the Federal Deposit Insurance Corp. (FDIC) or National Credit Union Administration (NCUA).
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High interest: CDs may carry higher interest rates than regular savings and even high-yield savings accounts, though rates vary.
Cons
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Limited returns: Historically, growth investments like stocks and mutual funds provide greater returns than CDs. Higher returns can have an exponential impact on retirement savings over time. Lower returns may not keep up with inflation.
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Contribution limits: Although you can work around contribution limits with an IRA rollover or by using funds in an existing IRA to open a CD, new contributions are subject to IRS limits.
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Early withdrawal penalties: Separate penalties for early withdrawal may apply if you take money out of your IRA CD before its maturity date and before you've reached the IRS age requirement for retirement withdrawals (59½).
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Account management: Your IRA CD may renew automatically at the end of your account term. But if it doesn't—or you want to consider other options when it does—you'll need to track CD maturity dates carefully and be prepared to act if the market changes.
IRA CD vs. Traditional CD vs. Roth IRA
Here's how IRA CDs compare to traditional non-retirement CDs and Roth IRAs that might hold a range of investments.
| Feature | IRA CD | Traditional CD | Roth IRA |
|---|---|---|---|
| Purpose | Tax-advantaged retirement savings with the predictability of a CD | Savings with a fixed term and a higher-than-average APY | Tax-advantaged savings for retirement |
| Tax benefits |
Same as a Roth IRA if held in a Roth Tax-deductible contributions and tax-deferred earnings if held in a traditional IRA | None: Interest is taxed as ordinary income | Earnings and qualified withdrawals in retirement are tax-free |
| Contribution limits | $7,000 ($8,000 if age 50+) | No limit | $7,000 ($8,000 if age 50+) |
| Withdrawal rules | May be subject to both an early withdrawal penalty on funds held in a CD and an early withdrawal penalty on IRA withdrawal before age 59½ | Early withdrawal penalty when you withdraw funds before maturity date | Can withdraw contributions at any time; may pay 10% early withdrawal penalty on earnings withdrawn before age 59½ |
| Growth potential | Fixed, may not keep up with inflation | Fixed, may not keep up with inflation | Varies depending on investments |
| Risk level | Low | Low | Varies depending on investments, but has potential for growth |
| Flexibility | Funds are invested in a CD with a fixed term and fixed APY | Funds are invested in a CD with a fixed term and fixed APY | Funds may be invested in a range of stocks, bonds, mutual funds, ETFs and other investments |
| Best for | Short-term or mid-retirement savings; stable, predictable interest offsets market volatility and preserves cash | Fixed-term savings for any life stage, with the benefit of a high interest rate that's also stable and predictable | Long-term retirement savings with a range of investments and growth potential but some risk |
Frequently Asked Questions
The Bottom Line
An IRA CD may not be the best option if you need to access your money before the CD's maturity date, or if you aren't planning to use the money to save for retirement. Though the tax advantages of an IRA can help you save more for retirement, general-purpose savers might have better luck with a regular CD or a high-interest savings account.
If you're feeling queasy about market ups and downs, or you simply want to add some stability to your retirement portfolio, IRA CDs are a high-interest, low-risk option for your retirement savings. IRA CDs are widely available from banks, credit unions, online banks and brokerages. Since interest rates and terms on CDs can vary widely, it's smart to shop around for the best CD.
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About the author
Gayle Sato
Gayle Sato writes about financial services and personal financial wellness, with a special focus on how digital transformation is changing our relationship with money. As a business and health writer for more than two decades, she has covered the shift from traditional money management to a world of instant, invisible payments and on-the-fly mobile security apps.
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