Best IRA CD Rates of May 2025
Written by Tara Mastroeni
An individual retirement account certificate of deposit, or IRA CD, can be a smart way to save for when you stop working because it can provide a guaranteed return on your investment. If you’re thinking of going this route, here are some of the highest IRA CD rates on the market today. See where you can grow your savings the most.
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What is an IRA CD?
An IRA CD is held in an individual retirement account. IRA CDs and traditional CDs typically share similar features: fixed annual percentage yield (APY), set term length, minimum opening deposit and early withdrawal penalty.
Like a regular CD, an IRA CD is an interest-bearing account, but it also offers potential tax-deductible or tax-deferred options on funds set aside for retirement. The type of IRA CD you choose will determine whether your contributions may be tax deductible and will grow either tax-deferred or tax-free.
A traditional IRA, for example, lets your earnings grow tax-deferred until withdrawal, while a Roth IRA allows your earnings to grow tax-free. Contributions to a traditional IRA are tax deductible, but you’ll pay income taxes on withdrawals when you retire. The opposite is true of Roth IRA contributions.
Financial institutions typically offer four types of IRA CDs, including traditional, Roth, Simplified Employee Pension (SEP) and Coverdell education savings account (CESA).
You can open these IRA CDs at brick-and-mortar or online banks, credit unions, brokerage firms, or mutual fund companies.
Investing in an IRA CD is done by rolling over funds from another IRA or by depositing money to open a new account. The same annual contribution limits apply to an IRA CD as with a regular IRA: For 2025, people under 50 are limited to $7,000, and those over 50 have an $8,000 limit.
Pros and cons of IRA CDs
Like many financial products, IRA CDs come with a combination of potential advantages and disadvantages, all of which should be taken into account before committing your funds.
Pros
- Provide fixed interest rates for a guaranteed return
- Deliver higher interest rates than standard savings accounts
- Offer low risk compared with other investments
- Give tax advantages depending on the type of IRA CD
- Include deposit protection of up to up to $250,000 at federally insured banks and credit unions
Cons
- Yield lower returns compared with stocks and bonds
- Limit access to your funds for emergencies or other investments
- Restrict annual contributions
- Potentially add penalties for early withdrawal
- Produce returns that are outpaced by inflation
Who is an IRA CD best for?
An IRA CD is geared toward investors nearing retirement or individuals wanting a low-risk place to put their money. The trade-off for stable and reliable returns can be more modest growth.
A CD lets you lock in your interest rate and determine your returns over months and years, which can be helpful when planning retirement expenses. If you are decades away from retirement, an IRA CD may not offer the growth you seek.
However, you’ll get guaranteed returns on your principal and federal backing with IRA CDs. An IRA CD can also be useful in diversifying a retirement portfolio and maximizing potential tax benefits, including deductions on contributions.
Shop around for the best rates before you invest. Online banks tend to offer higher rates than brick-and-mortar banks because they have lower overhead costs.
Are IRA CDs a good investment?
Whether an IRA CD is a good investment will depend on your financial goals and your risk tolerance.
First, make sure you won’t need access to your money before you lock it up in a CD. Then, consider your returns. You may be giving up some growth for safety, but this could serve you well if you are close to retirement or prefer a conservative investment strategy.
A few scenarios, in particular, could be optimal for opening an IRA CD:
- You do not have a 401(k) or IRA through an employer.
- You want to add to your employer’s 401(k) or your IRA.
- You are self-employed.
- You want to reduce taxable income by taking advantage of an IRA CD’s tax-deferred benefits.
Frequently asked questions
What is the difference between a CD and an IRA?
A CD is a type of savings account, and an IRA is a tax-advantaged personal savings plan. IRAs are often used as long-term investment tools for retirement income, while CDs are vehicles for short-term growth.
Is there an early withdrawal penalty for IRA CDs?
IRA CDs, like standard CDs, are subject to an early withdrawal penalty, which can vary by financial institution. You may also face a 10% IRS penalty on the withdrawal if you’re not at least 59 ½ years old.
Can you transfer an IRA CD from one bank to another?
The simple answer is yes, but an IRA transfer or IRA rollover from one financial institution to another is never simple. The transfer process depends on the rules, regulations and documentation requirements of both financial institutions, as well as IRS guidelines. You generally can’t make more than one rollover from the same IRA within one year.
Is an IRA CD tax deductible?
You may be able to deduct some or all of your contributions to a traditional IRA. Contributions to a Roth IRA aren’t deductible — and you don't report them on your tax return — but qualified withdrawals are tax-free if you satisfy the requirements.