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What is an IRA share certificate?

If you’re looking for a low-risk way to protect your retirement savings while earning a bit of income, you may want to consider an IRA share certificate. IRA certificates are a type of IRA that offers you a “triple fix”: you invest a fixed sum for a fixed time and earn a fixed rate of return. 

These retirement accounts share all of the tax benefits of an everyday IRA and can potentially help you decrease volatility—especially in uncertain economic times.

What is an IRA share certificate?

An IRA share certificate combines two financial tools: an IRA and a share certificate. It helps to think of them as a house and the furniture inside.

Three people can buy identical houses in a single neighborhood. However, what makes them different comes down to what’s inside. You choose furniture to achieve your specific design goals. And ultimately, you and your neighbors share a “container” of the same shape, but the pieces inside are vastly different.

When saving for retirement, an IRA acts as a house that holds your investments—the furniture. While many people have IRAs, the investments inside vary depending on each person’s financial goals. You can invest in different combinations of stocks and bonds through your IRA to meet your retirement savings goals. But you can also invest in share certificates.

Share certificates at credit unions work similar to certificates of deposit (CDs) at banks. You invest a fixed dollar amount for a fixed term. Then, in exchange for committing your investment dollars for that term, the credit union pays you a dividend rate—expressed as an annual percentage yield.  Your credit union will credit your dividend to your account the same way your savings account credits dividends earned.

IRA share certificates: pros and cons

Just like any investment, IRA share certificates have their pros and cons. Understanding both can help you decide if an IRA share certificate can help you achieve your retirement savings and income goals.

IRA share certificate pros

  • Safety. Just as CDs are federally insured through FDIC insurance, IRA share certificates are insured investments protected up to NCUA insurance limits—$250,000 per individual depositor.
  • Fixed rate of return. While the value of a stock will fluctuate based on the market, an IRA certificate gives investors a fixed—and guaranteed—rate of return.
  • Predictable income. You can establish a predictable income stream by purchasing multiple IRA certificates with different maturities—say 3, 6 and 12 months.

IRA share certificate cons

  • You exchange safety for lower returns. While the S&P 500 has returned roughly 10% annually from 1957 to 2022, share certificate and CD yield tend to be significantly lower.
  • May not keep pace with inflation. During times of high inflation, dividend rates on share certificates may not protect your purchasing power—especially if the inflation rate is higher than your dividend rate.
  • Early redemption can erode returns. Since you commit your funds for a fixed term, there could be penalties for early withdrawal if you need to access funds from your share certificate before maturity, which can eat away at your returns.

Is an IRA share certificate right for you?

If you’re trying to decide whether an IRA certificate could help you achieve your retirement savings and income goals, here are a few factors to consider.

An IRA share certificate may be right for you if…

  • You’re retired and want to protect your savings. If the stock market becomes too volatile for your tastes, an IRA share certificate can help protect your nest egg while offering a modest rate of return.
  • You want to ride out a rough stock market. You can invest in IRA certificates during turbulent markets and reallocate funds back into the stock market when you’re comfortable.
  • You’re willing to trade stock market-level returns for security. Since share certificates are insured, and their returns are fixed and guaranteed, they could be a good choice if security is your top financial priority.
  • You’re investing through a Roth IRA. Since retirement withdrawals from a Roth IRA are tax-free, you don’t have to worry about taxes eating away at your returns.

An IRA share certificate may not be right for you if…

  • You’re still several years away from retirement. An IRA certificate may be too conservative an investment to help you achieve your retirement savings goals.
  • You’re retired but in a higher tax bracket. If you’re investing through a traditional IRA and your withdrawals are taxable income, taxes could significantly erode your returns—especially if you’re in a higher tax bracket.
  • Share certificate dividend rates are low compared to other low-risk investments. If lower-risk investments like money market and bond funds offer higher returns than share certificates, those investments may better protect your retirement purchasing power.

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