Can I Add Money to an IRA Certificate of Deposit?

The funds in an IRA can be invested in just about anything – stocks, bonds, mutual funds and certificates of deposit. What's distinctive about an IRA is it's one of the types of tax-advantaged accounts. Traditional IRAs are tax-deductible the year you make your IRA contribution; you pay taxes when you withdraw the funds at retirement. Roth IRAs aren't deducted when you make your contribution, but you can withdraw the funds tax free when you retire.

An IRA CD functions like any other CD, and, in general, you can't add funds to a CD until it matures. Here's what you should know about these investment vehicles.

How CDs Work

A CD is a savings vehicle. You deposit money into a CD for a set term. You can find CDs for anywhere from ​30 days to five years​ or more. The longer the term period, the higher the interest rate on the CD.

Once you deposit the money, you're usually penalized if you withdraw it before the end of the term. This might mean giving up some of the interest you've earned or paying some other type of fee. Some CDs may offer more flexible terms, so you'll want to carefully read the fine print when considering a CD.

Adding Money to a CD

Whether or not it's an IRA, you generally can't add to a CD during its term. You can purchase a new CD, though. There's no limit to the number of IRA CDs you can have, provided you stay under the IRS maximum contribution guidelines. As of 2021, these limits are ​$6,000​ if you're under age 50 and ​$7,000​ if you're over 50.

Some individuals purchase several CDs with different term periods so there's always a CD maturing, which means the funds are available and new funds can be added. This is often referred to as a CD ladder.

Using an IRA CD

Any CD can be designated as an IRA. If you want to designate a CD as one of the IRA types of tax-advantaged accounts, let the financial institution know when you open the account. The main differences between an IRA CD and a regular CD are the rules that apply to any IRA.

With a traditional IRA, you are charged an early withdrawal penalty if you're under age 59 1/2, and you're required to take out money beginning at age 72. With a Roth IRA, you are charged an early withdrawal penalty if you withdraw any of the interest the CD has earned and are younger than age 59 1/2.

Considerations for CDs and IRAs

CDs have a higher interest rate, typically, than a savings account or money market fund. CD interest rates may be lower, over time, than other investments such as stocks or mutual funds. You also have two sets of penalties to contend with when purchasing an IRA CD. There are the penalties due to it being an IRA, and the penalties for early withdrawal of a CD.

CDs are very predictable and stable. Once a CD matures, it will automatically roll over and start a new term unless you designate otherwise.