What’s the Difference Between IRA Saving Accounts and IRA Investment Accounts?

So, you’re thinking about opening an IRA? Congratulations! That’s a great way to set yourself up for a fulfilling retirement. 

With 56% of Americans feeling behind on savings for retirement, including 37% who feel “significantly behind,” your best bet is to have a solid plan in place and reevaluate it as time goes on so you can stay ahead of the game.

The decision to open an IRA savings or investment account depends on several factors. It’s important to consider:

• your goals and long-term strategy
• how long you have to save for retirement
• how much risk you’re willing to tolerate 

The Differences Between IRA Savings and Investment Accounts

Now let’s take a closer look at the features and benefits you’d enjoy with each type of account.  

IRA Savings Accounts

Many people think of IRAs as brokerage accounts that help grow their retirement funds through investing. But, there are also savings-type options. They may be most attractive to those close to retirement or who want to diversify their portfolios with lower-risk options. These include:

• IRA certificates (also known as IRA certificates of deposit or CDs)
• IRA savings accounts 
• IRA money market savings accounts

IRA Certificates are savings accounts that earn a higher interest rate than you’d get with a traditional savings account. In exchange for agreeing to keep your money in the account for a specific amount of time, you’ll get a guaranteed return. This return isn’t tied to the ups and downs of the stock market. Your interest rate will depend on your balance and how long a term you choose.

Another notable benefit to an IRA certificate is how taxes on your interest are handled. With a regular certificate, you’d owe taxes on the interest in the year it’s paid. But, with a traditional IRA certificate, you get to delay paying the tax until you withdraw the money. With a Roth IRA certificate, your withdrawals will be tax-free because your contributions were made with after-tax dollars. 

Best for:

• Individuals nearing retirement who want a safe, guaranteed return 
• People who want to diversify their retirement funds to include some lower-risk options
• Those who want tax-deferred growth on funds they won’t need in the near future

An IRA Savings Account or IRA Money Market Savings Account may fit the bill if you’re looking for more liquidity (easier access to your money). Both work much like regular savings accounts and are widely regarded as safer options. 

Although the rates aren’t guaranteed like IRA certificates, they’re both still a good way to earn interest and grow your funds. Plus, because they’re part of your IRA, their tax benefits make them more attractive than other savings options. However, whether you choose a Traditional or Roth version, if you withdraw early (before age 59½), you’ll be subject to paying penalties, as outlined by the IRS. 

Best for:

• Retirees who want tax-advantaged growth on funds that are easy to access
• Those interested in diversifying their retirement to include lower risk, more liquid assets
• Risk-averse savers who want the benefits of an IRA account not tied to the stock market 

IRA Investment (Brokerage) Accounts

IRA investment accounts are those that invest your money in securities (stocks, bonds, mutual funds) for your retirement fund. This type of account offers you more investment options and the potential for higher long-term growth. Your contributions are split among the investments you’ve chosen, which grow based on their performance within the stock market as a whole. However, as with any investment account, they carry a higher risk than savings options as they’re subject to market fluctuations. You can make contributions to these accounts any time throughout the year, up to the maximum annual limits set by the IRS. 

Best for:

• People who have a long time to save for retirement
• Those interested in the potential for high growth, and who have a higher risk tolerance
• Individuals looking for a tax-advantaged way to grow their wealth in the stock market

As a Navy Federal Credit Union member, you have access to 2 investing options. 

• You can sign up for Digital Investor, our low-cost online investing tool. Digital Investor offers 2 options: automated and self-directed investing. With automated investing, our system chooses your portfolio based on your financial situation, goals, risk tolerance and overall market conditions. If you prefer to be more hands-on, a self-directed account allows you to research, choose and track your own investments. You can also have both types of accounts.
• You can work with one of our experienced Navy Federal Investment Services financial advisors. Your advisor will review your overall financial situation to help you develop a long-term financial plan. Then, you’ll work together to build a diversified portfolio based on your goals, risk tolerance and other important factors.

Retirement Income Calculator

Wondering how return rates will affect you down the line? Check and see at any point in your investment journey, with our retirement income calculator.