Savvy investors are always looking for the highest paying certificates of deposit. And why not? CDs are generally considered a safe investment vehicle to park your retirement funds.
In addition to being fully insured by the FDIC (up to $250,000), CDs provide a flexible alternative to traditional savings accounts. Many investors, however, are unaware that they have another option that works well in conjunction with a traditional bank CD; an IRA certificate of deposit.
In today’s economic environment many retirement plans will use a IRA certificate of deposit as a predictable way to increase a portfolio’s earnings. Since the investor knows exactly how much interest they will earn over a set period of time they are able to plan their spending much more efficiently.
The primary difference between an IRA CD and a traditional CD is the ability to set up your investment to automatically renew at a certain interest rate. Once an IRA CD reaches maturity the account holder typically has a ten day grace period in which they can withdraw their funds. If the investor elects not to, or fails to take action, the IRA CD will automatically be renewed at the fixed interest rate.
In addition to being immune to changes in the overall interest rate market, a fixed rate IRA CD can be used in either a traditional or ROTH IRA; depending upon your tax preferences. Furthermore, since these CDs are insured by the FDIC your principle and interest are guaranteed until the maturity date.
You also have the option of creating a CD ladder within your retirement account. Many investors prefer to open CDs every three to six months. This insures that the investor is able to participate in any increases in the general interest rate environment. It also provides access to your funds at various intervals which can improve your overall cash flow tremendously.
Finally interest earned from your CD is compounded daily. This helps ensure that you receive the maximum tax-deferred interest for your investment portfolio. Furthermore, since the interest begins to accrue as soon as the deposit is received you can start earning additional income almost instantly.
As you begin researching the best option for your retirement funds consider using an IRA certificate of deposit. These fixed income investments make a safe and effective tax deferred (or tax-free) investment strategy.