Best IRA CD Rates for 2023

I recently learned that my father has decided to cash out his UPS pension. The immediate question from my dad was, “How do I avoid paying taxes on this thing?”

After running through the various options in my head, I remembered something about my parents’ portfolio. My extremely risk-averse parents continue to keep nearly all of their money in a local savings account that earns a robust 0.05% APY. The most reasonable answer was, “Dad, roll your pension over to an IRA CD.”

What is an IRA CD?

An IRA CD is a certificate of deposit that is inside an IRA. A CD works like a savings account except that the money in the CD is locked up for a period of time in exchange for a higher interest rate. If you withdraw the money early you may pay a penalty that equals a predetermined amount of interest. For example, on a one-year CD you pay three months of interest for withdrawing funds before the year is up.

You can buy CDs inside your IRA, which makes them IRA CDs.

The drawback of CDs is the penalty for early withdrawal, but since you’ll be buying them in your IRA, you likely have a much better idea of when you’ll need the money than, say, if you were using CDs in your emergency fund. With interest rates so high you can be earning up to 5% guaranteed on your money. That’s not too bad.

The Best IRA CD Rates

Discover Bank

In addition to offering savings, checking, and credit card accounts, Discover Bank also offers both Roth and Traditional IRA CD’s.

Rates are as follows:

• 3-month - 2.00%
• 6-month: 3.40%
• 9-month: 3.50%
• 12-month: 4.75%
• 18-month: 4.75%
• 24- and 30-month: 4.30%
• 3-year: 4.30%
• 4- and 5-year: 4.00%
• 7- and 10-year: 3.80%

Discover offers Roth and Traditional IRAs and a $2,500 minimum deposit is required.

They also have an online savings account that is currently earning 3.90%

Here’s our full review of Discover Bank.

Ally Bank

Ally Bank currently offers a full range of IRA CDs, scaled from three months to five years.

Rates are as follows:

• 3-month: 2.00%
• 6-month: 3.40%
• 9-month: 4.15%
• 12-month: 4.50%
• 18-month: 5.00%
• 3-year: 4.25%
• 5-year: 4.25%

There are no maintenance fees, but perhaps the best feature Ally Bank offers for its IRA CDs is the 10-day best rate guarantee. If you open an IRA CD and the rate goes up within the first 10 days, Ally Bank will honor the new rate. This also applies on the date of your CD renewal, so you’re offered a touch of protection should interest rates immediately be on the rise.

Roth, Traditional and SEP IRAs are available and no minimum deposit is required.

Ally’s online savings account is currently 3.75%

Here’s our full Ally Bank review.

Synchrony Bank

For consumers looking to deposit into an IRA CD, Synchrony Bank offers terms of three months to five years.

Rates are as follows:

• 3-month: 2.25%
• 6-month: 4.25%
• 9-month: 4.30%
• 11-month (no penalty): 3.90%
• 12- and 13-month: 4.50%
• 14-month: 5.00%
• 15- and 16-month: 4.50%
• 18- and 19-month: 4.90%
• 24-, 36-, 48-, and 60-month: 4.30%
• 24-month bump up: 3.70%

The 11-month CD is a no-penalty CD, which means you can withdraw the funds at any time and not pay a penalty. Of course, the interest rate is quite a bit lower than the 12-month CD, so you kind of have a penalty built in right from the get-go. The penalty on a 12-month CD is three months of interest earned. So, on a $10,000 CD, we are looking at a penalty of around $100. But with the lower interest rate on the 11-month no-penalty CD, you’d be guaranteeing yourself lower earnings anyway. So, unless you know for sure you will need it, I’d risk the $25 and take the 12-month CD.

Also, the 24-month bump-up CD allows you to “bump up” your rate one time during the year. But again, you earn a lower rate for this privilege. So unless you are extremely sure interest rates are going to skyrocket, I’d just take the higher rate for the regular 24-month CD.

Roth and Traditional IRAs are available and there is no minimum balance required

Synchrony also offers a great high-yield savings account with an APY of 4.00% and no minimum balance required.

Here’s our full review of Synchrony Bank.

PenFed Credit Union

PenFed Credit Union offers IRA CDs from one to seven years.

Rates are as follows:

• 1-year: 4.50%
• 2-year: 4.35%
• 3-year: 4.00%
• 4- and 5-year: 3.85%
• 7-year: 3.75%

PenFed offers both traditional and Roth IRAs with a $1,000 minimum deposit required.

Pros and Cons of an IRA CD

How to Open an IRA CD

To open an IRA CD you will first have to open an IRA at the bank where you will be buying the CD. For example, let’s say you are going to buy a CD from Discover Bank. First, you would open an IRA at Discover (either traditional or Roth) and fund that IRA account.

You could fund it with the cash you have on hand (up to annual contribution limits) or roll over some money from an existing IRA. Note that there may be tax consequences if you move money from a Roth to a traditional and vice versa.

Once your money is in an IRA at your desired bank you can use it to purchase a CD. Not all banks allow CD purchases inside an IRA so if you aren’t using a bank from this list be sure to ask before moving your money.

Is an IRA CD Tax Deductible?

Whether or not an IRA CD is tax deductible depends on a few different factors. In a Roth IRA, any money you contribute is taxed when it’s earned but then grows tax-free. When you withdraw from a Roth IRA in retirement you’ll pay no taxes. A traditional IRA works differently. With a traditional IRA, the money you contribute is tax deductible and it grows tax deferred. When you withdraw from a traditional IRA in retirement you’ll pay taxes on the amount you withdraw. There are income limits for the deductibility and limits on the contributions to IRAs of either type.

That is true regardless of what kind of investments you choose inside of your IRA.

Read more: Roth IRA Contribution and Income Limits

Are IRA CDs FDIC Insured?

Yes, all the banks on this list provide FDIC insurance. That means that if the bank goes bankrupt the insurance will give you your money back. It is protected up to $250,000 per depositor on the account. PenFed Credit Union is insured by the credit union equivalent of the FDIC, the NCUA, up to the same amount.

Summary

If you are looking for a safe investment with a guaranteed rate of return, CDs might be just the thing. They earn competitive interest rates compared to regular savings accounts and, like a savings account, are insured.

While your long-term savings should likely be invested in the stock market, CDs provide a safe place to store some money that you will want access to over the shorter term.