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CD vs. IRA: How they compare for reaching your savings goals

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Dean Mitchell/Getty Images

There's a good reason people choose to use investments and savings products to reach retirement and other financial goals rather than keeping all their cash in one spot. Certain types of accounts are designed to help your money grow over time, giving you the benefits of compound interest and compound returns.

Two tools you might consider are certificates of deposit (CDs), which are a type of investment, and individual retirement accounts (IRAs), which are accounts that hold investments, sometimes including CDs. Both have qualities that make them attractive to savers—they help you store your money out of reach for future use and tend to grow over time.

But when thinking about whether to put your money into a CD vs. IRA, you'll discover these two differ in their time horizons, relative liquidity, risk level and growth potential. Read on to explore when a CD or an IRA is better for you—or why you might choose both—depending on your individual savings goals.

The basics of CDs

certificate of deposit is a type of savings account you hold with a financial institution, such as a bank or credit union, that pays a fixed interest rate. You deposit a certain amount of money (the minimum required can vary) that the bank holds for a particular amount of time (generally between three months and five years).

During this time, called the "term," you earn interest at a set rate that, while initially based on market conditions, doesn't fluctuate based on market activity. For this reason, CDs are considered low-risk. Plus, the money held at financial institutions is generally either insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) up to certain limits.

You can't withdraw money from your CD before the end of the term, called the "maturity date," without paying a penalty. But as a trade-off, CDs usually have better interest rates than standard savings accounts.

CDs are generally considered best for short- to medium-term needs, such as saving for a vacation or a large purchase, since they mature within months or years.

The basics of IRAs

An individual retirement account is a type of investment account that helps you save for retirement. It's similar to a 401(k) except, instead of going through your employer, you open an IRA and make contributions of your earned income on your own. However, you're limited in how much you can contribute to an IRA every year:

  • 2023: $6,500 if you're younger than 50 or $7,500 if you're 50 or older.
  • 2024: $7,000 if you're younger than 50 or $8,00 if you're 50 or older.

The money you put in your IRA is invested in the market based on your selections of stocks, bonds, mutual funds and more, even including CDs. This can be aligned to your risk tolerance and investment style, whether conservative, aggressive or somewhere in between. Your IRA may have FDIC or NCUA insurance if it's held at a bank or credit union. But if it's held with an investment firm, protection may depend on the firm's membership with the Securities Investor Protection Corporation (SIPC).

IRAs are designed to discourage withdrawing from them until you turn 59½. Unless you meet certain exceptions, you face a penalty if you do. The trade-offs for this limited liquidity are the growth potential of the market and the particular tax advantages that come with IRAs. Traditional IRAs are tax-deferred until you withdraw money in retirement, and Roth IRAs, which are funded with post-tax dollars, offer you tax-free withdrawals in retirement.1

Regardless of which kind you use, IRAs are best suited for meeting your long-term needs.

CD vs. IRA differences

CDs and IRAs both help you save money while enjoying benefits you might not get with other investments or types of accounts. However, each has unique advantages: An IRA offers a wider range of options for risk and returns as well as a long time horizon (the point at which you plan to use the money). A CD is a shorter-term vehicle for near-term goals with a fixed interest rate and low risk.

Time horizons: CDs for short-term goals, IRAs for long-term goals

When deciding whether to put money into a CD or into your overall IRA holdings, consider your goal and when you expect to tap your savings.

If you have a near-term goal, such as putting a down payment on a house in two years or growing a certain amount in interest to use for charitable giving every six months, a CD may be the way to go. While CD interest rates may not be as high as the potential of IRA returns, CDs are stable and predictable throughout their short terms.

IRA investments may go through years of ups and downs and have no guarantees.

Relative liquidity: CDs for more, IRAs for less

Another factor to consider is how quickly and easily you may need to access your money; that is, its liquidity. Both CDs and IRAs expect you to keep money in them for a specified time and have penalties if you withdraw early.

But with CDs, you can more easily access your money because they're for a shorter term. When a CD term ends, you can leave it, add to it, or take out some or all of it and put it elsewhere entirely.

By comparison, most people don't plan to touch any money in an IRA until after reaching age 59½ or in specific penalty-free circumstances.

Risk tolerance & growth potential: CDs for less, IRAs for more

CDs are considered low-risk savings vehicles because you can't lose money (except in cases where you withdraw early and face penalties). Even if the market falters during your CD term, you still get the rate you locked in when you opened the account. But this low risk also means there's no potential for gain beyond the stated rate until the CD matures. And during that time, you may or may not find better rates.

IRAs, however, are investment accounts whose risk level and growth potential go up and down based on what assets you're holding in them. In general, the market tends to grow over time—data for the S&P 500 suggests an annualized return averaging 7.58% over the past several decades. Even excellent CD interest rates are usually lower than that.

Comparing CDs & IRAs at a glance



Usually a one-time deposit upon opening, subject to minimums and maximums set by the institution

Can be one-time or ongoing, subject to an annual maximum set by the IRS

Potential for gains

Fixed interest rate that tends to be incrementally higher for longer terms

Variable returns depending on investment choices


Discouraged until maturity date

Discouraged until age 59½

Ideal time horizon

Short- to medium-term (typically 3 months to 5 years)

Long-term (typically retirement)

Risk tolerance

Low risk

Varies based on investment choices, but generally mid-level risk

Is a CD or an IRA better for you?

Comparing your CD vs. IRA options is easier when you know what goals you want to achieve with your savings. If you're saving for a near-term goal, a CD may be a better fit than contributing to an IRA, where your money is generally meant to stay until retirement.

When your main goal is to save generally for your potential future needs or if you're close to retirement and want your mix to lean more predictable than volatile, there's a case to be made for either a CD, an IRA or both. It's a matter of balancing which tool has the right time horizon, accessibility, risk level and growth potential for you.

An experienced financial advisor can work with you to assess your exact needs and which variety of savings and investment vehicles can help you reach your goals.

1Distributions of earnings are tax-free as long as your Roth IRA is at least five years old and one of the following requirements is met: (1) you are at least age 59½; (2) you are disabled; (3) you are purchasing your first home ($10,000 lifetime maximum); or (4) the money is being paid to a beneficiary.

Investing in securities involves risks such as fluctuating principal, and they may lose value. CDs offer a fixed rate of return. The value of a CD is guaranteed up to $250,000 per depositor, per insured institution, by the Federal Deposit Insurance Corp. (FDIC), an independent agency of the United States government.

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.