Discover® Bank IRA CD Rates 2024 Review
CDs can be a good choice if you want to save for the long-term. If saving for retirement is on your to-do list, an IRA CD is a safe alternative to investing in stocks or mutual funds.
IRA CDs combine the safety and steady returns of a CD with the tax benefits of an individual retirement account.
Discover Bank offers both traditional and Roth IRA CDs with guaranteed rates of return and no monthly fees.
Ready to open an IRA CD? Dive into our review to learn whether a Discover IRA CD belongs in your retirement savings strategy.
Lock In The Highest CD Rates Before Interest Rates Crash Again
The Federal Reserve plans to continue dropping interest rates. To ensure that you continue to generate reliable returns for years to come, consider a CD now to lock in the highest available rates:
How Quickly Can Your Money Grow?
IRA CDs are similar to savings accounts, in that your money earns a set interest rate over time.
The higher your rate, the more interest you can earn.
Discover Bank offers a competitive rate for its IRA CDs. The rates are tiered, based on the CD term you choose.
The terms range from three months to 10 years. The rates don't vary based on balance.
That means you'll get the same great rate on a 10-year CD whether you open an account with $1 or $25,000.
Compared to other banks that offer IRA CDs, Discover's rates are competitive.
To get the highest rates, consider opening an IRA CD with a term of three years or longer.
Available in traditional and Roth IRAs
These rates apply to both traditional and Roth IRAs. The difference between these two IRAs lies in their tax treatment.
With a traditional IRA, it's possible to deduct your annual contributions.
You then pay tax on any interest you earned on the CD when you withdraw money from it in retirement.
With a Roth IRA, you don't get a deduction for contributions. But, you are able to withdraw money from a Roth IRA CD tax-free in retirement.
You also don't have to worry about taking required minimum distributions from a Roth IRA CD at age 70 ½ the way you would with a traditional IRA CD. That means your money continues to grow tax-free until you need it.
Traditional IRA Vs. Roth IRA
| Traditional IRA | Roth IRA |
|---|---|
| Contributions may be tax-deductible. | Contributions are not tax-deductible. |
| Pay taxes upon withdrawal. | Earnings can be withdrawn tax-free and without penalties if the funds were in the Roth IRA for 5 years and you've reached age 59 1/2. |
| You must be under age 70 1/2 to contribute. | You can contribute at any age. |
| Required minimum distributions (RMDs) are required starting at age 70 1/2. | No RMDs required. |
Early Withdrawal Penalties
CDs are time deposits, meaning they're designed to help you save for a set period of time.
Once the CD reaches maturity (i.e., the end of its term), you can withdraw your initial deposit and any interest you've earned.
Withdrawing from a CD before its maturity date can trigger an early withdrawal penalty.
Discover Bank assesses a penalty for early withdrawal from a CD (including IRA CDs).
The penalty is a percentage of the interest earned and the amount is based on the CD term length.
Discover Bank CD Early Withdrawal Penalties
| CD Term | Early Withdrawal Penalty |
|---|---|
| Less than 1 year | 3 months of interest |
| 1 year to 4 years | 6 months of interest |
| 4 years to less than 5 years | 9 months of interest |
| 5 years to less than 7 years | 18 months of interest |
| 7 years or more | 24 months of interest |
IRS early withdrawal penalties
That's not the only early withdrawal penalty you need to know about with an IRA CD, however.
IRAs are meant to be used for long-term retirement saving. The IRS imposes a tax penalty for withdrawals made from an IRA before age 59 ½. That same penalty applies to early withdrawals from an IRA CD.
Generally, the early withdrawal penalty is 10% for withdrawals from a traditional or Roth IRA CD.
If you're withdrawing early from a traditional IRA, you'll also pay income tax on the money.
You may have to pay income tax on early Roth IRA withdrawals if you haven't had an IRA for at least five years.
With traditional IRA CDs, there's one other penalty you need to be aware of.
Once you turn 70 ½, you have to begin taking required minimum distributions (RMDs) from your IRA.
The amount of the distribution is based on your CD's value and your life expectancy.
If you don't take these distributions on time, a tax penalty kicks in.
The penalty is 50% of the amount you were required to withdraw, which is pretty steep.
Something else to know: if you pass away and someone inherits your traditional IRA, they also have to abide by the RMD rules to avoid a tax penalty.
What's the Minimum Deposit?
Most IRA CDs have a minimum deposit requirement to open your account.
At Discover Bank, there's no minimum to open a traditional or Roth IRA CD.
Remember contribution limits apply
One thing to know here, too: your annual contributions to an IRA CD are limited by the IRA.
The amount you can contribute adjusts for inflation each year, but you can't more than the allowed limit.
You also can't add new funds to a Discover Bank IRA CD during the maturity term.
The only time you can add more money to one of these CDs is during the grace period when the CD is about to renew.
Can You Open a Traditional IRA CD and a Roth IRA CD at the Same Time?
The short answer is yes, you can open both types of IRA CDs.
The catch is that your total contributions to both CDs can't be more than the total annual contribution limit for a single IRA.
That means if the total yearly limit you can contribute to an IRA is $5,500, you'd have to divvy that amount up between your traditional and Roth IRA CDs.
You don't want to go over the limit either; excess contributions to any IRA are subject to a tax penalty.
What Happens When Your IRA CD Matures?
Discover sends out a notification 30 days before your IRA CD is set to mature. Once it matures, you can either withdraw your initial deposit, plus any interest earned, make a new deposit or change the terms of your IRA CD.
Any of these changes must be made during the grace period. This period lasts for nine days after the maturity date.
If you don't do anything during this grace period, your IRA CD automatically renews for the same term.
Your new rate will be whatever rate is in effect for that CD term at the time of renewal.
IRA CD Rollovers and Transfers
During the grace period, you can transfer or roll over money from an employer's plan into your IRA CD.
There are two ways to roll over money into your CD: direct and indirect transfers.
A direct transfer means the money moves from your employer's plan to your IRA CD, without ever touching your hands. This is the best option if you want to avoid a potential tax penalty.
If you set up an indirect rollover, meaning your employer's plan sends you a check that you then have to deposit into your IRA CD, you have to observe a strict timeline.
If you don't deposit that money within 60 days, the IRS treats the whole transaction as a taxable withdrawal. That could mean a big tax bill, plus an early withdrawal tax penalty.
Can you roll money from an IRA CD at another bank to an IRA CD at Discover?
Absolutely, but there's a limit on how often you can do that. The IRS only allows one IRA-to-IRA rollover every 12 months.
What to Look For in an IRA CD
Discover isn't the only bank to offer IRA CDs.
As you look around for IRA CD options, there are a few things to keep in mind:
Type of IRA CD available
Many banks offer traditional and Roth IRA CDs, but some also offer IRA CDs for self-employed savers. If you run a business or you're trying to grow a side hustle into a full-time career, that might be important to you.
Interest rates
Specifically, pay attention to whether the rates are tiered based on either the CD term, the balance or both. If a CD offers a higher rate than its competitors but it requires you to lock in your savings for 10 years, ask yourself if you're comfortable with a longer maturity term.
Minimum deposit to open
It's possible to find IRA CDs with minimum deposits as low as $100. That might be appealing if you don't have a lot to save, at least to start.
Early withdrawal penalties
In the rare case that you need to withdraw your IRA CD before it reaches maturity, it's nice to know that you're not being punished too harshly.
Is a Discover Bank IRA CD Right for You?
Overall, an IRA CD with Discover is a good option because of the competitive CD rates and wide range of maturity terms available--you can pick one that fits your savings timeline.
Moreever, Discover Bank has kept rates very consistent for many, many years such that you don't have to become a rate-chase to ensure that your money is growing faster than traditional brick-and-mortar banks.
