Most fixed IRAs are certificates of deposit, or CDs, with terms that vary from six months to five years. Often fixed IRAs require a minimum deposit of $500 or more. Since most CDs are insured by the Federal Deposit Insurance Corporation, or FDIC, for amounts up to $250,000, they provide you with more assurance regarding the safety of your principal. Some fixed IRAs are annuities, which are CD-like instruments offered by insurance companies. They provide similar benefits but without FDIC insurance.
With a fixed IRA the interest rate is fixed during the specified term of the IRA and remains the same until maturity. This includes the dividend rate and annual percentage yield. If you have a fixed IRA, typically it will automatically renew at maturity. Automatic renewals are done at the interest rate in effect when the fixed IRA matures. In addition, the renewal term generally matches the original term and commences on your fixed IRA's maturity date. A 12-month fixed IRA would roll over into another 12-month IRA at maturity; a 36-month rolls into a 36-month IRA at maturity.
Many financial institutions will provide renewal notification in advance of your IRA's impending maturity date, to allow you time to determine whether you want to keep your fixed IRA or move your funds into another asset. However, the onus is on you to track your maturity date and notify your institution of any changes in advance of your IRA maturing. With automatic renewal, financial institutions provide a seven- to10-day grace period after maturity during which you can withdraw funds without incurring an early withdrawal penalty.
A six-month fixed IRA at 1.2 percent interest established on April 1 will automatically renew on its maturity date of September 30. Your funds will automatically roll over into a new six-month fixed IRA at the 1.4 percent interest rate used for six-month IRAs on that date. You will have until October 7 or 10, depending on your financial institution, to withdraw or transfer the funds to another IRA. After that, you must wait until the next maturity date.
Some brokerage firms that offer fixed IRAs may allow you to choose another option. Instead of automatic renewal, you may be able to roll over your fixed IRA into a general IRA brokerage or share account. If you want a long-term fixed IRA and are concerned about missing the grace period, check with your broker to confirm this option exists.
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