IRA Certificate of Deposits and How They Work

You can establish IRA CDs at banks and credit unions.

You can establish IRA CDs at banks and credit unions.

Individual Retirement Account certificates of deposit (IRA CDs) are low-risk investments that you can set up at your local bank or credit union. IRA CDs provide you with several benefits that include principal protection and tax-deferred interest on your earnings. On the downside, you only have limited access to your money unless you're willing to pay penalty fees and taxes.

Certificate of Deposit

A certificate of deposit (CD) is type of loan agreement involving you and a bank. You lend the bank money for a set period of time, and the bank repays it along with interest. A CD term can last for days, weeks, months or years. When a CD matures, you usually have a seven- to 10-day grace period during which you can move the money elsewhere. If you do nothing, the CD starts a new term. Most banks assess an interest penalty if you withdraw cash from your CD before it matures. CDs are federally insured up to $250,000 per account owner per bank. This means you're protected up to that amount if your bank goes bankrupt.


An IRA is a type of qualified retirement account that you fund with pre-tax contributions. The money inside the account grows tax-deferred. You pay a 10-percent tax penalty if you withdraw funds from an IRA before you reach the age of 59 1/2. You don't have to pay this penalty if you become disabled or if you withdraw funds as an account beneficiary after the IRA owner dies. You can invest IRA funds in a variety of investments including CDs. IRA CDs are insured separately from your other bank accounts, up to $250,000 per bank.


When an IRA CD matures, you don't have to pay the 10-percent IRA withdrawal penalty if you move the money into a new IRA. You have a 60-day window from the day of withdrawal to reinvest the cash in another retirement account. If you don't roll the funds in time, you have to pay the 10-percent tax penalty plus pay ordinary income tax on the amount that you withdrew from the account.

Brokerage CDs

Aside from buying IRA CDs directly from a bank or credit union, you can also buy a CD through a brokerage firm. You must establish an IRA brokerage holding account. You deposit cash into the account and then tell your broker to use some of that money to buy a bank CD on the open investment market. When a brokerage CD reaches maturity the issuing bank liquidates the CD and deposits the cash into your account. You don't have to pay any taxes and penalties as long as you keep the money in the IRA brokerage. Alternatively, you can roll the cash into another IRA account at a different institution.


About the Author

Ciaran John began writing in 1994 with contributions to "The Hourly Press" and "The Sawbridgeworth Observer," and has since written for many online and print publications. He has 12 years experience working for financial services companies as a business banker, lender and investment representative and spent four years working in human resources.

Photo Credits

  • John Foxx/Stockbyte/Getty Images