Many retirement plans depend on an Independent Retirement Account (IRA) as the primary savings strategy. Using fixed rate IRA certificate of deposits helps increase your earnings in a predictable way – since you will know how much it will earn over the savings term you choose. Fixed rate IRA CDs are FDIC insured, and offer a variety of other benefits.
Fixed Rate IRA CD With Automatic Renewal Options
The main distinction between a fixed rate IRA and a Certificate of Deposit is the ability to set your fixed rate IRA to automatically renew. When your IRA reaches its scheduled maturity date, the account holder has as even to ten day grace period during which time he or she can withdraw the money. If the money is not withdrawn, or you don’t ask to make any changes, the IRA CD will be renewed for the same term at the current fixed rate of interest available.
Benefits of Fixed Rate IRA CD
- Choosing automatic renewal certificate of deposits with terms between three months and sixty months allows you to have the interest rate and amount of your deposit guaranteed to the maturity date, thanks to FDIC insurance.
- You can select a fixed rate IRA CD for Traditional or Roth IRA options, depending on how you want to handle the tax implications of your contributions and distributions.
- Your fixed rate IRA CD interest rate is not affected by changes in the financial market, which makes it an ideal deposit account for periods of economic downturns.
- You can ladder fixed rate IRA CDs similar to laddering other certificate of deposit products. Open your first fixed rate IRA, and as you get enough money to open another, you can keep opening them with different maturity dates which gives you access to your money at various intervals.
- Depending where you open your fixed rate IRA CD, you can choose to make additional deposits into the IRA. If this is something you would like to do, just be sure you select an IRA from an institution that allows additional deposits to the fixed rate IRA as not all do.
- Normal distributions to your fixed rate IRA CD are allowed without early withdrawal penalties for customers aged 59 ½ or older.
- Interest is compounded daily, which means you’ll receive the maximum tax-deferred interest on your IRA funds. The interest is credited to the fixed rate IRA CD on a monthly or quarterly basis, depending on the institution’s policy for crediting interest. Interest begins accruing the same day your deposit is received.
When saving for your retirement, the fixed rate IRA CD is an excellent option to earn either tax-deferred or tax-free interest (depending on the type of IRA you select). Earnings of Traditional fixed rate IRA’s grow tax-deferred until you take them out. Depending on the level of your income, contributions to a Traditional IRA may also be tax-deductible up to the total amount of your contribution. Contributions made to a Roth IRA are not tax-deductible, but that means the interest and earnings in a Roth IRA will grow tax-free.