High-Yield Savings Account
Money Market Account
Certificate of Deposit (CD)
Certificates of deposit (CDs) are ideal for long-term savings goals, such as a down payment on a home or a college education. Depositing money in a CD is a commitment to leave your money in the account for a specific period, such as six months, one year, or five years. This period is called the “term” of the CD. The date on which the stated term ends is called the “maturity date.” Typically, the longer the term selected, the higher the interest rate.
It’s important to leave your money in the CD until the maturity date, because early withdrawals may be subject to an “early withdrawal penalty,” including loss of some or all interest. Many CDs automatically renew, so when your CD reaches the maturity date, you have a short time (typically 10-15 days) to withdraw your money or allow it to roll into a new term.
Individual Retirement Account (IRA)
An individual retirement account, commonly referred to as an IRA, is a tax-deferred investment account for wage earners to set aside money for retirement. An IRA can be established at a bank, credit union, brokerage or mutual fund company. It can be invested in certificates of deposit, money market funds, stocks, bonds or other securities.
The Internal Revenue Service provides tax benefits on IRA contributions and earnings, according to certain guidelines. Individuals are allowed to make annual IRA contributions up to a maximum dollar amount, based on the year and the individual’s age, as set by the Internal Revenue Service.
There are two types of IRAs: traditional and Roth, each serving a different tax-planning purpose. Qualifying contributions to a traditional IRA are tax deductible in the year made, and distributions at retirement are taxable. Roth IRA contributions receive no tax benefit, but distributions during retirement are tax-free.
It is important to deposit only money you will not need prior to retirement. If you withdraw money from a qualified IRA before the age of 59 ½, you may be subject to income tax, plus a 10 percent early distribution tax.