Learn About Opening IRAs at Your Bank

Here's what you need to know about opening IRAs at your bank

Should I get an IRA? Word IRA held in hand
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Banks do offer individual retirement accounts (IRAs) to its customers. These accounts offer tax advantages for retirement savings and have strict rules regarding contributions and withdrawals. In order to make withdrawals without a penalty, you must be 59 1/2. If you make an early withdrawal you will have to pay fees and penalties on the money. Banks offer both traditional and Roth IRAs. A traditional IRA allows you to make contributions tax free, but you are taxed on your withdrawals. A Roth IRA’s contributions are taxed, but you can make withdrawals tax-free once you reach retirement age.

The More Secure the Funds Usually Means the Rate of Return is Lower

Most banks offer IRAs as Certificates of Deposit(CDs). The CDs are protected by the FDIC for up to $250,000 total if the bank were to fail. However, the rate of return on the CDs is generally much lower than the rate of return if you were to open an IRA at a brokerage firm. The investment portion of your bank may offer IRAs that are not CDs, but these funds are not guaranteed by the FDIC. The more secure the funds usually mean that the rate of return is lower. A CD locks in a set rate of return for a specific period of time, when that period of time ends, you will need to roll the current CD into a new one, without drawing out any funds.

The market rates may go up or down depending on the current economic conditions.

Considerations When Choosing an IRA

When you are choosing the type of IRA you want to open you should consider if you want the security or the ability to grow your money more, and then open the IRA in the place that will help you do that the most. When you are in your twenties the majority of your retirement savings should be in a high growth high-risk account, because it affords you the greatest opportunity to build your wealth. You also have time to recover from a market crash. As you get older you need to transition to lower risk accounts.

This will protect your money.

With that in mind, if you are more conservative when it comes to investing, you may choose to open an IRA at your bank, because your 401(k) is more focused on the high-risk high growth funds. Your IRA contributions can be set up monthly or you can contribute once each year. Although most CDs do not allow for monthly contributions, many banks do allow an IRA CD to have monthly contributions if they have an automatic payment set up.

If an IRA is your only current retirement savings account, you may be better off going with an investment firm, since they can offer you an overall better rate of return. You do want your retirement savings to grow, so you can retire comfortably. Just remember to switch to more conservative investments, as you grow older. This should be in your late forties and early fifties. If you want a self-directed IRA, you will need to look for one at an investment firm. 

Other Retirement Savings Options

In addition to your IRA, you should open a retirement account through your job if they offer one. If you are self-employed there are retirement accounts available to you. You can open a SEP or KEOGH account for self-employed people. These accounts offer the same benefits as a 401(k) plan. When you are self-employed you are solely responsible to prepare for your retirement.

Although you are required to pay into the social security system, you should not include social security as part of your retirement plans at this time. The social security system may not be in place when you retire, and you may not qualify for as many benefits as you are currently told in your social security benefits statement you receive. Additionally, the retirement age may increase, and if you want to retire early, you will not be able to draw on your funds when you first retire.