CDs as an IRA Investment Tool

If you have an IRA, CD investing could be a strategy that you want to implement. The IRA can be a great tool to utilize when trying to get to retirement. When you include CDs as part of your IRA, there are several unique advantages that you can look forward to. Here are the basics of using CDs as an IRA investment tool.

IRA Investing

With an IRA, your objective is to save and invest as much money as you can for retirement. The money that you make in the IRA is allowed to grow tax-free in the account. As part of the IRA, you can invest in many different types of securities. Many choose to use stocks, bonds and mutual funds as the investments of choice for their IRAs. However, the CD is another viable option that you should consider for a portion of your IRA funds. 

How CDs Work

The term CD stands for Certificate of Deposit. A CD basically means that you are loaning your money to a bank for a predetermined amount of time. You agree to give them the money that they need and then they agree to give it back to you with interest, after a certain time period. 

CDs are one of the safest forms of investment around because they are FDIC insured, which means that even if the bank fails, the government will step in and guarantee the money for you, up to certain limits. They also will provide you with a guaranteed rate of return over the life of the CD. Therefore, you are getting a guaranteed amount of return on your investment regardless of what else happens to the bank that you deposit with. 

The interest that is paid on a CD is usually quite small. However, as an investor, you know that when you eliminate risk, you also eliminate the possibility of a high return. 

CDs in IRAs

Investing your IRA funds into CDs can be a sound investment strategy because of the safety involved. Your retirement is something that you do not want to mess around with. You want to know that the funds will be there by your target retirement date. If you put all of your money into stocks, it could all be gone tomorrow. With CDs, you at least know that the money will be there for you. You can rest assured that you will receive a certain amount of money in interest over the years and you can calculate what your nest egg will be. 

This level of assurance can be a very coveted asset for many investors. With the uncertainty of the stock market and other financial markets, CDs are a way to virtually guarantee that you will be able to retire when you want. With that being said, you will have to commit to investing more money along the way to fund the CDs. Since you will not make as much of a return, it will take a bigger investment and a longer time period to make it work. 

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