How to Buy an IRA Certificate

by Linda Ray

When saving for your retirement, a certificate of deposit (CD) used within an investment retirement account is a relatively safe investment. A CD provides a stable interest rate. While CDs allow you to earn interest at a higher rate than regular savings or money market accounts, you must pay taxes on any interest you earn. When the CD is a part of your IRA, you don’t pay taxes until you begin withdrawals after age 59 1/2, or when you retire and your tax burden is likely lower.

1. Save up an initial amount to buy a CD. Check with your bank for the various limits they impose. Some banks require a minimum of $1,000 to purchase a CD, while others may offer CDs for less.

2. Visit your bank manager to make the purchase. Transfer the money to the CD and ask the bank to tie the funds into an IRA. The bank will set up the account for you. Keep the forms you receive from the bank to back up your tax filing status.

3. Determine whether you'll want to continue to make deposits into the certificate. Some banks allow you to continue making deposits while others only sell certificates for a fixed price into which you cannot make deposits.

4. Open one IRA CD and open more CD accounts as you accumulate funds. The CDs will have different expiration dates so that you can withdraw the money at different times without penalty. Once you turn 59 1/2, you won’t incur any IRS withdrawal penalties.

5. Shop around for a CD. Various banks offer introductory offers with high interest options for a short period of time. Take advantage of the specials because once you are locked in to an interest rate, it cannot change until the CD matures.


  • The longer you leave your money in a certificate of deposit, the higher interest rate you may receive. Banks and credit unions sell CDs for varying lengths of time. For example, you might purchase a $2,000 CD for 12 months at 3 percent interest, or receive closer to 5 percent if you put the same money in a 60-month CD. The money you put in an IRA CD is protected by the FDIC, whereas money in a traditional or Roth IRA without the certificate of deposit is not protected.


  • If you withdraw your money from a CD before its maturation date, you will most likely have to pay a penalty. You'll also incur the IRA penalty of 10 percent that's tied to IRA accounts if you withdraw the funds before your turn 59 1/2.

Items you will need

  • Money
  • Bank

About the Author

Linda Ray is an award-winning journalist with more than 20 years reporting experience. She's covered business for newspapers and magazines, including the "Greenville News," "Success Magazine" and "American City Business Journals." Ray holds a journalism degree and teaches writing, career development and an FDIC course called "Money Smart."

Photo Credits

  • Keith Brofsky/Photodisc/Getty Images