Q:

Should you invest in a CD or Roth IRA?

A:

Quick Answer

A Roth IRA is not an investment, but a vehicle for investing. Funds placed the Roth IRA can be used for investing in CDs, stocks, bonds or any other type of security, Bankrate explains. As such, a CD and a Roth IRA cannot be directly compared.

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Full Answer

For younger individuals in a lower bracket, a Roth IRA may offer several advantages over other retirement plans, such as a traditional IRA or a 401(k), notes Bankrate. Although contributions to a Roth IRA are not tax-deductible, withdrawals made in retirement are not taxed, unlike traditional IRA and 401(k) withdrawals, making it possible to grow an investment tax-free. In addition, contributions can be withdrawn penalty-free.

Security is typically considered the greatest advantage of CDs, as they are usually completely insured up to a certain amount by either the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA), depending on the type of institution offering the CD. The amount insured varies, however. For example, the FDIC insured a maximum of $250,000 in a given account as of 2011. Since the FDIC insures only specific accounts, an individual may keep accounts at more than one financial institution and have $250,000 insured on each account. In addition, married couples can open a joint account insured to $500,000, enjoying a total insurance of $1,000,000 between their individual accounts and the joint account, Investopedia explains.

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