How to Find the Best IRA CD Rates

Your rate of return depends on the assets held inside your IRA

Two men on green couch reading newspaper financial tables
••• PhotoAlto/Getty Images

Certificates of deposit (CDs) have published rates of return, but you won't find published rates for individual retirement accounts (IRAs). Unlike an IRA, a CD is an actual investment instrument. An IRA is an account that holds investment instruments.

You can own various types of assets inside your IRA account, such as CDs, mutual funds, and stocks, and the investments you hold will determine your IRA's overall rate of return.

There's No Such Thing as an 'IRA Rate'

The term "IRA" refers to the tax treatment of the investments held inside the IRA. You don't pay taxes each year on the interest, dividends, or capital gains that your IRA investments earn. Instead, the investment income accumulates inside the IRA, and you pay taxes at the time you take a withdrawal—unless you have a Roth IRA. Withdrawals from Roths are often tax-free.

Purchasing an "IRA CD" simply means buying a CD. That's it. The only catch is that you would pay for it with funds from your IRA rather than out of pocket.

Think of an IRA as a bucket. Suppose you had to estimate the weight of a bucket, but you couldn't see what was in it. To come up with an accurate estimate, you would need to know what was in the bucket: air, water, sand, or bricks.

Just like determining how much the bucket weighs, you have to know what types of investments will be held inside your IRA to determine the IRA rate.

IRA CD Rates

A CD held within your IRA should almost certainly deliver the quoted interest rate, provided it's held to maturity. Its annual percentage yield (APY) is important, as is the minimum deposit required to achieve that APY and the term of the CD.

These are considered to be some of the best bets as of 2018, depending on your needs:

Institution APY Minimum Deposit Term

Ally Bank

3.00 percent APY

$25,000 minimum deposit

Five-year term

Capital One

3.00 percent APY

No minimum deposit

Three-year term

CommunityWide Federal Credit Union

2.9 percent APY

$2,000 minimum deposit

Two-year term

Discover Bank

3.10 percent APY

$2,500 minimum deposit

10-year term

Marcus by Goldman Sachs

 2.85 percent APY

$500 minimum deposit

Six-year term

Mountain America Federal Credit Union

3.51 percent APY

$500 minimum deposit

Five-year term

PurePoint Financial

3.00 percent APY

$10,000 minimum deposit

Three-year term

TIAA Direct

3.10 percent APY

$5,000 minimum deposit

Five-year term

Most of these financial institutions offer shorter terms, but the APY drops correspondingly. Use these rates and guidelines to compare with the terms offered by your own local bank. Small banks and credit unions sometimes offer advantageous products as well.

Determining the Overall Rate of Return

Look at the performance of the underlying investments you might choose for your IRA to estimate the overall rate of return your IRA might earn. For example, you'll want to look for the best CD rates if your IRA will hold certificates of deposit. You can invest in a fixed annuity inside your IRA, so look for the best fixed annuity rates.

You can own treasury securities or government bonds inside your IRA, in which case the IRA rate would be a combination of the interest rates paid by the underlying bonds it holds. Your IRA can also hold mutual funds, so you'd have to decide whether to own stock, bonds, or balanced mutual funds. Look at the performance history of each to determine their past rate of return. And, of course, this year's return does not indicate much less guarantee next year's results.

An IRA can hold individual stocks, and if structured properly, you can even own real estate in your IRA, as well as many other types of investments.

Finding the Best Rate of Return

You first have to decide how much investment risk you're comfortable taking if you're going to achieve the best overall IRA rate. Most investment choices that have the potential to pay a higher long-term rate of return offer less stability in the short term.

Choosing higher-risk investments, like stock mutual funds, is likely to give you a higher return than choosing safer choices like CDs, provided that you're young and leave your money there for a while. Otherwise, CDs are most suitable for those who don't have much tolerance for risk. They can also serve to diversify your IRA and the investments held there.

You can then look at the performance history of these investments after you've chosen the investments you want your IRA to hold, but this would only be called a "rate" if it was an interest-paying investment like a CD, a fixed annuity, or a bond.

Cautions and Considerations

Be cautious if an investment firm seems to be offering a much higher rate than you can find anywhere else. No one gives money away. High returns with low risk simply don't exist. 

Many advertisements lure investors in with the promise of a high rate, but it might not be as attractive as the advertising makes it appear. Read the fine print to see how the investment is structured.

These advertisements are often sponsored by firms that receive a commission to sell you their investment products. Have an independent adviser help you evaluate the investment before you buy if something seems to good to be true.