What Is an 18-Month Variable IRA?

An 18-month variable individual retirement account is a retirement account in which individuals put aside a certain amount of money every year to invest for tax-deferred earnings. The interest rates and terms are more flexible with an 18-month variable IRA than with regular IRAs. Typically, these IRAs are offered by credit unions and banks.

Variable Interest

An 18-month variable IRA has an interest rate that changes throughout the life of the IRA, unlike other IRAs, in which the interest rate is fixed. These variable rates are sometimes also called floating interest rates. U.S. Treasury security rates usually determine variable interest rates for these short-term IRAs. The variable rates can change monthly or even daily, depending on the terms.

Opening an Account

Opening a variable-rate IRA generally costs less than opening a fixed-rate IRA, which often require a minimum deposit of $500 or more. A variable-rate IRA has a much lower minimum deposit -- between $5 and $100. Additional deposits can be made to these IRAs without penalty until they mature.

Additional Rules

Variable-rate IRAs usually take the form of a Roth or traditional IRA. A Roth IRA is funded with net earnings, while a traditional IRA is funded with pre-tax earnings. With an 18-month variable IRA, the bank or credit union can change the interest rate at any time without notifying the holder. Before the IRA matures in 18 months, only interest can be withdrawn without the account holder incurring a penalty. Other withdrawals are charged a fine except in the case of extenuating circumstances, such as the IRA holder dying.

Closing the Account

An 18-month variable IRA matures after 18 months. Some banks set up these IRAs to automatically renew every 18 months unless the owner changes his mind. When the IRA certificate matures, the owner can also choose to move the IRA to a different bank if he is dissatisfied with the interest rates he received. A 30-day grace period usually applies after the certificate matures to allow the owner time to move the account or withdraw money.

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