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What are CDs and IRAs?
Are you thinking about investing but aren’t sure where to begin? CDs and IRAs are a good, low risk place to start. In this blog, we will explain just what these are and when it would be a good time to invest.
Certificates of Deposit
Certificates of Deposit (CDs) are offered by banks and credit unions and, typically, have a higher interest rate in exchange for a commitment to keep the money in the CD for a specific period of time. CDs are offered for various periods of time ranging from three months to five years. Generally, the longer the duration of a CD, the higher the interest rate it pays. Think of CDs as high-interest savings accounts that you don’t have immediate access to.
It is important to note that if you decide to withdraw the money before the end of the term, you will have to pay a penalty. So be sure to pick a term that you are comfortable with.
Individual Retirement Arrangements
Individual Retirement Arrangements, or as they are more commonly known IRAs, help you save for retirement; the main benefit being tax-deferred growth on your investment.
There are two types of IRAs to choose from, Traditional and Roth. Traditional IRA contributions are made from your pre-tax income which will, generally, lower your taxable income for the year. This decrease in your adjusted gross income will help you qualify for other tax incentives you may not otherwise get, such as student loan interest deduction. A Roth IRA is a retirement account that you fund with your post-tax income which means, unlike a traditional IRA, you can’t deduct your contributions on your income taxes. However, all future withdrawals from your Roth IRA will be tax free.
Just like a CD, there are possible tax penalties for early withdrawal (before the age 59 ½).
When to Invest
Now that you know what CDs and IRAs are, when should you start investing? For IRAs, you should really start contributing as soon as you are eligible. Like all retirement accounts, the sooner you start to save, the more money you will have once you decide you are ready to retire.
CDs are another great retirement-planning tool because, once you invest in a CD, you are guaranteed the same yearly interest rate for whole term, no matter what happens in the market. You just want to be sure that you invest in the CD that best fits your goals so you can maximize your earnings.
CDs and IRAs are just some of the tools you can use in your retirement planning. For more information on how and when to start preparing for your retirement, read the Retirement Planning Starts Early blog. There are some great tips to help you get the ball rolling.
To learn more about our CD and IRA rates, click here or give us a call at 954-745-2400.