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IRA CDs vs. IRA Share Certificates: What’s the difference?

Two women witting on sofas and looking at an open laptop screen.
Two women witting on sofas and looking at an open laptop screen.

You may already know that an IRA is a type of retirement account that nearly anyone can open. However, you may not be as familiar with an IRA certificate of deposit (CD) and their credit union counterparts, IRA share certificates.

An IRA CD works just like a regular CD: It’s a fixed-term savings account that offers a guaranteed rate of return. So in the simplest terms, IRA CDs are CDs can be opened inside of an IRA. And depending on market conditions and your financial needs, they could help you protect your retirement savings and build a reliable income stream.


What is an IRA CD?

An IRA CD, short for Individual Retirement Account Certificate of Deposit, is a certificate of deposit held within an IRA. As a refresher, CDs are timed investments. You invest a fixed sum for a fixed time and receive a fixed rate of return on your deposit through the CD maturity date.

Many savvy savers use CDs because they’re low-risk ways to generate a predictable return on their funds. For instance, say you put $5,000 in a 12-month CD with a 3.00% annual percentage yield or APY. In this case, you’ll earn $150 at the end of the 12-month term.

Now, think of an IRA CD for that same $5,000 amount. If you’re nearing or in retirement, you may not be able to afford to lose any of your hard-earned retirement savings. So in years like 2022, when the S&P 500 generated a -18.32% return, you might want to protect your savings in safer products.

If you put your retirement funds in an IRA CD yielding 3%, you would have enjoyed guaranteed returns that handily outperformed the stock market that year. Plus, CDs are FDIC insured, so unlike an investment in stocks or mutual funds, your initial investment is also protected.


What is an IRA Share Certificate?

The way an IRA share certificate works is similar to a bank CD in that it provides a guaranteed rate of return on a lump sum of money. The big difference is that you’ll only find IRA share certificates at credit unions.

An IRA share certificate is a fixed-term savings product designed for use in an IRA. You can invest a fixed sum of your IRA funds for a fixed time and earn a fixed dividend rate.

The dividends for an IRA share certificate are calculated the same way you would calculate interest rate on most other savings accounts. For example, a $5,000 investment in a 12-month IRA share certificate with a 3.00% annual percentage yield (APY) will earn a dividend of $150 when the share certificate matures.

Finally, IRA share certificates are also insured products backed by NCUA insurance. So like a CD, your principal investment in a share certificate is protected, and your rate of return is guaranteed.


Can I open share certificates in my IRA?

You can open share certificates in your IRA. You can also open share certificates in different types of IRAs. Here’s what you need to know about how opening share certificates in your IRA works.


Step 1: Decide how much to invest

Here’s the best part about IRA share certificates: You can invest as much of your retirement savings as you want.

Say you have an IRA at an online brokerage with a $500,000 balance. You could deposit any portion of those funds in an IRA share certificate. A conversation with a financial advisor could be just what you need to decide the ideal amount.


Step 2: Decide where to open your IRA share certificate

You don’t necessarily have to open your IRA share certificate from your current credit union. In fact, it can pay to shop around to find the best share certificate to fit your needs.

Before opening an account, you should compare interest rates, terms, and minimum deposits from several financial institutions.


Step 3: Open an account

Since you know how much you want to invest in your IRA share certificate and who has the best rates and terms, it’s time to open an account. First, you’ll need to know what type of IRA to open. IRA share certificates are available for traditional IRAs and Roth accounts.

Many banks and credit unions let you open an IRA account online. You can drop by the branch to open the account if you live close to your preferred financial institution. Remember that if you choose a credit union, you’ll need to become a member before opening your account—which is generally a simple process.


Step 4: Fund your account

It’s time to deposit the money you’ll use to open your IRA share certificate. You can do this one of two ways: with a cash deposit or a rollover.

Cash deposit. Suppose you’re eligible to contribute to an IRA for the year (your financial institution or advisor or tax professional can help). In that case, you can deposit an amount in your new IRA up to the annual contribution limit.

For 2023, the annual contribution limit is $6,500 for those under age 50, plus an additional $1,000 for those age 50 and older. Keep in mind that IRA contribution limits are cumulative across all IRAs you own.


Step 5: Open an IRA share certificate

Once you fund your account, you can work with your financial institution to open share certificates that meet your needs. You might open one share certificate with your entire investment. Or you could split your money into multiple certificates with different term lengths using a strategy that’s called “building a share certificate ladder.” Your financial institution will usually be able to help you set this up.

For instance, you could deposit $10,000 into a single 12-month IRA share certificate or spread that $10,000 across five different share certificates with 6, 12, 18, and 24-month maturities. As each certificate matures, you roll it back into a long-term certificate. This strategy gives you a balance of locking in longer-term rates while giving you more access to your funds if you need them.


Step 6: Decide what to do at maturity

When your share certificate matures in your IRA, you have a few different options:

  • Put all of the principal and dividends back into a new certificate
  • Withdraw a portion of the principal and dividends as income, if eligible
  • Invest the principal and dividends in a different type of product

Certificates in your IRA give you plenty of options for what’s next, and your savings strategy can change along with your financial needs.


Who should consider opening an IRA share certificate?

While “guaranteed returns” can sound attractive, IRA share certificates aren’t the best option for everyone. Whether one is right for you depends on your savings goals and how close you are to retirement.

An IRA share certificate might be right for you if…

  • You’re nearing retirement and are looking for a low-risk, high-earning savings account
  • You have some time and are comfortable locking your money up for a longer term like 1 to 5 years or even 10 years
  • You want your savings to be federally insured by the NCUA up to $250,000
  • You’re retired and want to build a predictable income stream by laddering certificates in your IRA
  • You’re close to retirement and want to protect a portion of your assets in an NCUA insured vehicle

An IRA share certificate or CD might not be right for you if…

  • You’re far from retirement and need to build your savings
  • You’re in retirement and are unsure of your income needs
  • Your risk tolerance is higher
If you’re unsure whether an IRA share certificate or CD is right for your financial goals, speak to a representative at your financial institution, tax professional or a financial advisor. A short conversation can help you decide whether a certificate or a different investment product would be better for your unique situation.

Frequently asked questions

Yes, you can open share certificates in an IRA.

It depends. Many certificates have early withdrawal penalties if you access your principal before maturity. If you think you might need to tap your cash early, look for financial institutions that offer no-penalty share certificates. Or look for a product with penalties that you deem are acceptable to access liquidity. You may be able to close the account and only give up a portion of the dividends or interest in fees.

An IRA is a type of retirement account that holds different types of investments. A share certificate is an investment product you can hold inside an IRA. You can also hold share certificates outside of an IRA.

IRA share certificate rates will fluctuate with market conditions and liquidity needs of the financial institution. Their rates typically track alongside rates on savings accounts. So if the Federal Reserve raises or lowers interest rates, you may expect share certificate rates to be close, if not slightly higher, than savings and money market account rates.

Want to protect your nest egg? First Tech has IRA share certificates with competitive dividend rates. See how easy it is to become a member and earn a guaranteed rate of return on your retirement savings.

For specific tax advice, please consult a qualified tax professional. First Tech does not sell Certificates of Deposit in or outside of Individual Retirement Accounts. Membership required and subject to approval.

Registered address: 1011 Sunset Blvd, Rocklin, CA 95765 │ 855.744.8585

Financial Advisors offer securities through Raymond James Financial Services, Inc. Member FINRA/SIPC and securities are not insured by credit union insurance, the NCUA or any other government agency, are not deposits or obligations of the credit union, are not guaranteed by the credit union, and are subject to risks, including the possible loss of principal. First Tech Federal Credit Union and Addison Avenue Investment Services are not registered broker/dealers and are independent of Raymond James Financial Services. Investment advisory services offered through Raymond James Financial Services Advisors, Inc.

Matching contributions from your employer may be subject to a vesting schedule. Please consult with your Financial Advisor for more information.

Like Traditional IRAs, contribution limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free.

401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.

While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax matters. You should discuss tax matters with the appropriate professional.