- Like other types of CDs, traditional IRA CDs pay interest a regular interval, such as monthly, quarterly or yearly. Most IRA CDs use a fixed interest rate, but some may include a variable rate, or allow the owner to "bump up" the rate if interest rates rise. Some IRA CDs allow owners to make additional deposits in the IRA CD, such as monthly contributions, while others only allow an initial deposit. Many banks offer IRA CDs that are automatically renewable, meaning that upon maturity, the bank will renew them for the same term unless the owner specifies otherwise.
- Traditional IRA CDs may mature in as little as 3 months or as long as 5 years, and each bank or financial institution may offer different CD lengths. Some banks may only offer 1-year or 3-year CDs, while others give a wide range of options. In general, the longer the term of the CD, the higher the interest rate it offers. Traditional IRA CDs also generally have a penalty, such as forfeiture of interest, if the owner withdraws money from the account before the maturity date.
- Many banks use a tiered interest rate system for traditional IRA CDs, meaning that people with more money in their accounts may receive a higher interest rate. Some banks use a simple tier system, such as under or over $50,000, while others have several tier levels, such as under $9,999, $10,000 to $49,999, $50,000 to $99,999 and $100,000 and up. This can be an incentive for people to continue contributing to their accounts.
- CDs are generally one of the safest investments, since they pay a regular interest rate, and are not subject to the market fluctuation of stocks and bonds. Most banks that offer traditional IRA CDs are federally insured by the FDIC (Federal Deposit Insurance Corporation) or the NCUSIF (National Credit Union Share insurance Fund). Both of these programs guarantee that even if the bank or credit union faces insolvency, the government will pay the owner the money. The money in retirement accounts, such as traditional IRA CDs, has separate coverage from other accounts the owner has at the same financial institution, which often allows for higher coverage limits.
- Investors should consider their investment goals when choosing an account for their traditional IRA. Although CDs are a safer investment than stocks or bonds, they generally do not earn as much over the long term. Traditional IRA CDs may be best for those who are just starting to save for retirement and don't have much money to contribute, or for those who are nearing retirement and need a safe place to store their funds. Investors should always carefully research the financial institution and its terms and conditions before opening an account.
