What Is the Difference Between an IRA & a CD?

You can save money in both an IRA and a 401(k) account.

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An individual retirement account or a certificate of deposit allows you to earn interest today on money you'll use in the future. Banks offer multiple types of CDs, including traditional, bump-up and callable. Brokerage firms typically offer IRA accounts, although some banks and insurance companies also offer them. The types of IRA accounts include traditional, Roth, Simplified Employee Pension and Savings Incentive Match Plan for Employees. The final two types are for self-employed workers and small business owners.


A big difference between a CD and an IRA is the amount of time that your money grows. CD accounts have a variety of time spans, such as one-year, three years and five years. There is a fixed amount of time that your money is in a CD account. An IRA account keeps accumulating deposits and interest until you reach retirement age or start making regular withdrawals. Traditional IRA regulations require that you start making withdrawals at age 70 1/2. According to IRS regulations, you may leave money in a Roth IRA account indefinitely.

Interest Rate

CDs have a predetermined interest rate, but that is not the case for IRA accounts. The interest rates for a CD are usually lower than the rates for an IRA. CDs carry less risk since you deposit your money with a bank. Interest rates are slightly higher than a money market or savings account. Bump-up CDs allow you to switch to a higher interest rate once during the term. With an IRA, you choose to invest your deposits in stocks, bonds and mutual funds. The risk is higher since the values of these investments are more volatile.

FDIC Insurance

The Federal Deposit Insurance Corporation insures the money you place in a CD account. This means that if the bank fails, FDIC insurance will prevent you from losing your money. As of the time of publication, FDIC insurance covers up to $250,000 for each deposit account category. If you have one CD that contains $250,000 at one bank and $100,000 in another CD at a separate bank, both CDs are covered. FDIC insurance does not protect money in an IRA account. If your brokerage firm fails, you may lose the entire value of your investment.

Early Withdrawals

You'll pay a penalty on any withdrawal made from a CD before its maturity date. The maturity date is the end of the investment term. Traditional IRA account regulations allow you to make withdrawals prior to the age of 59 1/2 under certain circumstances. Some of the expenses that qualify include a down payment on a first home, college tuition and medical costs that exceed 7.5 percent of your adjusted gross income. Roth IRA regulations allow you to withdraw the money you've put into the account at any time. You may not withdraw any interest earnings without penalty.

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About the Author

Helen Akers specializes in business and technology topics. She has professional experience in business-to-business sales, technical support, and management. Akers holds a Master of Business Administration with a marketing concentration from Devry University's Keller Graduate School of Management and a Master of Fine Arts in creative writing from Antioch University Los Angeles.

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