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IRA Cds How Do They Work?

fullself   |     |   3 posts since 2010

Can someone explain how IRA cds work?  If I see a rate I like can I buy it in my Roth at Fidelity or do I have to buy directly from that bank?

Ken Tumin
Ken Tumin   |     |   5,947 posts since 2009
You can have an IRA at a bank, credit union or broker. Inside an IRA you can hold any number of products including a savings account, a CD, stocks, bonds or mutual funds.

At a bank, your typical choices are CDs and savings account. The CD inside an IRA typically works just like a CD outside of an IRA. However, interest is taxed differently. Since its in an IRA, it's either tax deferred (Traditional IRA) or tax free (Roth IRA).

At a broker, in addition to stocks, bonds and mutual funds, you can often buy brokered CDs inside your IRA. For example, if you hold an IRA at Fidelity, you could buy one of their brokered CDs. However, your choice of CDs are limited to the brokered CDs that they offer. Many of the best CD and IRA CD rates are offered by credit unions (like PenFed) and banks that don't offer brokered CDs through brokers.