What an IRA CD Is, Rates and How It Works

Saving for retirement is important for people of all ages, with a 401(k) being a particularly popular option. However, this standard account type may not always be enough. That’s where an individual retirement account, or IRA, comes in. IRAs let you save for retirement without going through your employer. Furthermore, an IRA CD lets you lock in a CD-style interest rate in the form of a term-based retirement account. IRAs, 401(k)s and IRA CDs are three options to save for retirement, but there are many other possibilities on the market.

Consider speaking with a financial advisor to learn more about how this type of account potentially fits into your retirement plan.

What Is an IRA CD?

An IRA CD is simply an IRA where all the money is invested in certificates of deposit (CDs). To understand what that means, let’s look at the two types of bank accounts that an IRA CD combines: an IRA and a CD.

A CD is an account that typically offers a higher interest rate than a savings or checking account. However, your money is tied up in the CD for a predetermined length of time, known as the CD’s term. If you withdraw money before the end of the term, you will likely pay considerable penalties. A CD term could be as short as three months or as long as 10 years. The longer the term, the higher the interest rate usually is.

An IRA is a tax-advantaged retirement account that allows you to save and invest your money in a number of different ways. The IRA itself is not an investment. It’s more like a home for your investments. Many people use IRA funds to invest in stocks and bonds, but you could also put it into money market accounts or CDs. Regardless of which type of IRA you have or how you allocate IRA funds, the advantage is that you don’t pay tax on your money as it grows. You pay tax before you contribute to the account or after you withdraw from the account, depending on the type of IRA you have.

So if you wanted to, and assuming your bank allows it, you could invest some of your IRA funds in stocks, some in bonds, put some in a money market account and then put some in CDs. If you wanted to put all of the funds in CDs, you would have an IRA CD.

Pros of Using an IRA CD

Now that you understand what an IRA CD is and how one works, let’s see if it’s the right choice for you. Here are a few pros to consider:

Security: IRA CDs are a secure way to invest your money. So long as you open an IRA CD with an FDIC-insured institution, your savings are insured for up to $250,000. Even if your financial institution fails, you’re protected up to that amount. This is not the case for other investments like stocks or bonds.
Stability: CD interest rates don’t fluctuate with the market. The rate you agree to when you open the CD is the rate you’ll get. That predictability can help you plan your retirement savings because you know exactly how much you’ll earn from a CD.
Simplicity: A CD is a straightforward investment tool. There isn’t a lot to consider when choosing one and it isn’t likely to make adjustments throughout its life. Investing in an IRA CD is easier and less time-consuming than designing and managing your own investment portfolio.
No fees: Most investments are usually subject to management fees. Depending on how you invest, you may have to pay brokerage fees and expense ratios. Fees eat into your retirement savings and may only make it harder for you to reach your goals. With a CD, you won’t have those fees.

Cons of Using an IRA CD

A financial advisor going over IRA CDs with their clients.

Despite their stability and reliability, IRA CDs do have some notable drawbacks and disadvantages:

Low returns: CDs offer predictable returns, but their rates may fail to outpace inflation. Relying heavily on IRA CDs for retirement savings may yield less growth compared to a diversified portfolio of stocks, bonds, and other investments.
Early withdrawal penalties: Withdrawing funds from a CD before it reaches maturity incurs an early withdrawal penalty. The penalty amount varies depending on the CD and the financial institution.
IRA contribution rules and penalties: IRA CDs are subject to standard IRA rules, including contribution limits ($7,000, plus $1,000 for savers 50 and over, in 2025) and tax implications. Early withdrawals from an IRA CD are penalized not only by the CD’s terms but also by IRS penalties for early IRA withdrawals.
Minimum investment requirements: CDs often require a minimum deposit, which can be as high as thousands of dollars. While higher minimums typically offer better yields, they may be inaccessible for those without sufficient funds.

Which CDs Can You Use in an IRA CD?

You can use any CD as part of an IRA. So if you’re looking to open an account, a good way to start is by comparing CD terms and rates. Some financial institutions also offer CDs that are specifically for retirement. These CDs usually have term lengths of 10 years or more. They’re also likely to have higher yields and higher minimums than a CD with a shorter term.

Who Should and Should Not Invest in an IRA CD?

IRA CDs are great for conservative, low-risk investors who want security against their initial capital and a guaranteed yield. If you will retire soon or are already retired, you may want to shift some of the nest egg into an IRA CD. You will earn a relatively low return, but that could be enough if your goal is just to secure the money you’ve already saved.

Because IRA CDs offer a relatively low return, they’re not ideal for younger investors or people who are just starting to save for retirement. Individuals who have decades before they retire are usually better served with a diverse portfolio.

You should also avoid an IRA CD if you’ll need to use the money that you invest. Withdrawing money early from a CD isn’t a good idea because of the early withdrawal penalties.

How to Open an IRA CD

As we mentioned, you can use any CD in an IRA, but some banks have created special CDs for the express purpose of growing retirement savings. They usually offer more favorable terms in exchange for more restricted accessibility (i.e. longer terms). Here are some IRA CDs that you should consider:

Ally Bank: Ally Bank provides IRA High Yield CDs with terms ranging from three months to five years. As of December 2024, rates range from 2.90% APY for a three-month CD to 4.10% for a six-month CD. Notably, Ally requires no minimum deposit to open an account, making it accessible for various investors. Ally also offers an IRA Raise Your Rate CD that gives you the option to raise your rate once during a two-year term and twice during a four-year term if the bank raises its rates during that time.
TD Bank: The TD Choice Promotional IRA CD features tiered interest rates that increase with higher balances. As of December 2024, specific APYs vary by term and balance; for example, a 6-month term offers a standard APY of 1.00%, which can increase to 4.00% with an eligible TD Bank personal checking account. The minimum deposit to open is $250. These CDs automatically renew at maturity to the same term at the non-promotional TD Choice IRA CD interest rate and APY in effect at the time of renewal.
Bank of America: Bank of America Bank of America offers a range of IRA CDs, including the Featured CD IRA with terms from 7 to 37 months and APYs up to 4.05%; the Fixed Term CD IRA with terms from six months to 10 years and lower APYs (e.g., 0.04% for a one-year term); and the Flexible CD IRA, a 12-month option with a 3.51% APY (renews into a three-month CD paying 0.10% APY). All options require a $1,000 minimum deposit. Rates and terms are subject to change, so confirm details with Bank of America directly.
PNC Bank: PNC Bank offer IRA CDs with various terms and rates. The minimum opening deposit for these accounts is $250. Terms range form six months to 10 years. For rates and other specifics, contact PNC Bank directly.
Citi: You can also open an IRA at Citi with a CD or a money market account. Rates range from 0.05% to 4.30 APY depending on the account and term length. You can’t apply for a Citi IRA online. You’ll need to send a printed application, visit a branch or call an account specialist at 1-800-695-5911.
Discover: Discover offers IRA CDs with terms from three months to 10 years. The 12-month IRA CD currently has an APY of 4.10%, while a six-month IRA CD has an APY of 2.00%. Furthermore, there isn’t a minimum deposit requirement.

Bottom Line

Retirees enjoying retirement, having put a portion of their savings in IRA CDs.

An IRA CD is a type of IRA that consists of CDs. You can use any CD in an IRA, but some banks have CDs that are specifically for retirement savings. These usually have long terms of about 10 years and higher yield rates. In general, an IRA CD can be a great way to invest for retirement without exposing yourself to many risks.

Those who are close to retirement or already retired in particular could consider using CDs. If you have decades to go before you retire, you may not want to use an IRA CD. Their low growth rates of 1% – 2% won’t help you as much as a diverse investment portfolio might. As with any investment decision, consider your specific situation, goals and needs before putting money into an IRA CD.

Tips for Retirement Planning

Planning for retirement is one of the most important financial endeavors you’ll take. If you’re unsure of whether you’re doing everything you can to maximize your retirement savings, perhaps it could be worth working with a financial advisor. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have free introductory calls with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
As you think about how you need to save for retirement, start with your monthly budget. A good rule of thumb is that in retirement, you’ll spend 70% to 80% of what you spend now. Your budget will help you figure out what that translates to in dollars.
Employer-sponsored retirement plans, like 401(k)s, are a great way to save for retirement. If you’re self-employed, you can still save by opening a SEP-IRA. A SEP-IRA is relatively easy to set up and has flexible rules on annual contributions.