What is a CD IRA?
A CD IRA combines two things:
- An Individual Retirement Account (IRA), and
- A Certificate of Deposit
Benefits of a CD IRA
The main reason to use a CD IRA is to grow your money safely. If your money is FDIC insured, you won’t lose money using CD IRAs. You have to make sure to keep your accounts below certain dollar limits, but you can count on a government backed guarantee if your bank fails.APY means you’ll end up with more spending money in retirement.
CD IRA Drawbacks
Unfortunately, CD IRA accounts are not perfect. You have to lock your money up to earn higher rates, and you may not be able to do so. You can manage the problem by using CD ladders and planning ahead.
Also, CD IRA investments may not earn as much as other investments over long periods of time. If you’re young and you have a long time horizon, you should at least investigate other investments (while keeping inflation in mind) before you use a CD IRA. Work with a financial planner to determine what’s best for your situation.