Compare the Best IRA Savings Accounts Rates

Saving for retirement is hard for a lot of people. Finding the extra money to put aside is difficult enough. Knowing what to do with that money can be even harder.

Many people use Individual Retirement Accounts (IRAs) to save towards their retirement. IRAs offer significant tax benefits, so taking advantage of them when you can is a good idea. Most people think of IRAs as investment accounts, but there’s no requirement that you invest the money you put in an IRA.

If you want to avoid losing money in the stock market, while still earning some return, you can open an IRA savings account. Find out some of the options available to you.

Best IRA Savings Accounts

IRA savings accounts work a lot like regular savings accounts. Because they are so similar, many banks offer the option of opening an IRA savings account. The three best IRA savings providers that we’ve found are Ally Bank, Synchrony Bank, and Capital One 360.

Ally Bank IRA Savings

Ally is a popular online bank that offer a full suite of banking services. Among those services is the option to open an IRA savings account.

Ally Bank offers both traditional and Roth IRA options, and pays the same great rate no matter what your account’s balance is. Small business owners can open a SEP IRA savings account. Even better, Ally doesn’t charge its account holders any monthly maintenance fees or fees to open an account.

The interest on an Ally Bank IRA savings account is compounded daily and you get access to 24/7 customer service online or by phone.

Ally Bank Online Savings Account Pros & Cons

Synchrony Bank IRA Money Market Account

Synchrony Bank offers IRA money market accounts to its customers. While not exactly the same as a savings account, money market accounts share many of the same features. They pay a high rate of interest and serve as a safe place for your money to be stored. Like savings accounts, they are insured by the Federal Deposit Insurance Corporation, so you cannot lose any money you deposit in a money market account, so long as your balance stays under the insurable limit.

Synchrony Bank’s IRA money market account pays the same rate of interest no matter your balance. Like Ally Synchrony doesn’t charge monthly fees or other maintenance fees. Which you choose should depend on which offers the best rate, and which company you feel has the better service.

Synchrony Bank IRA Money Market Account Pros & Cons

Capital One 360 IRA Savings

Capital One is best known as a credit card lender, but it also operates an online banking service, Capital One 360.

Just like Ally and Synchrony, Capital One offers a single interest rate regardless of your balance. You also don’t have to worry about fees. Capital One’s rates are lower than Ally or Synchrony, so you should probably consider one of the other options unless you already have accounts with Capital One.

Capital One 360 Performance Savings Account Pros & Cons

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What is the Difference Between IRA Savings and Regular Savings Accounts

There are a few important differences between regular savings accounts and an IRA savings account.

With a regular savings account, you are free to move as much money as you’d like into and out of the account, whenever you’d like. There are some restrictions regarding online savings accounts, but you are by-and-large free to do as you please.

IRA savings accounts have the same restrictions as any other IRA account. You’re limited to contributing $6,500 per year to an IRA. Even if you wanted to deposit more, you are not allowed to.

Similarly, you cannot withdraw money from an IRA whenever you’d like. If you make a withdrawal before you turn 59½, you could incur tax penalties of up to 10% of the amount withdrawn.

Savings accounts are a great way to save for a rainy day. You could sock away some cash for when your car breaks down or some other major expense comes up. You could also use a savings account to save towards a goal like a family vacation. No matter what you’re saving for, a savings account lets you keep that money separate from your spending cash.

An IRA savings account, because of its contribution and withdrawal rules, has just one purpose: retirement savings. Don’t contribute any money you expect to need before you turn 59½, because you could wind up being forced to withdraw it and pay a penalty.

How IRA Savings Accounts Offer Tax Benefits

So, given the restrictions on IRA savings accounts, why bother to open one? You should open one because they offer tax benefits that could save you thousands of dollars in taxes.

Traditional IRA Vs. Roth IRA

Traditional IRAs

Traditional IRAs offer upfront tax benefits in the year that you make your contributions. When you contribute money to a traditional IRA, you can deduct that amount from your income when filing your taxes. That means that your tax bill for the year will be lower, and you might wind up receiving a refund.

Let’s consider this example.

In 2023, you have $50,000 in taxable income after your deductions. Your total tax bill for the year comes to $8,238.75. Before filing your taxes, you decide to contribute $5,000, almost the maximum amount, to a traditional IRA. That brings your taxable income down to $45,000. Because you are taxed on $5,000 less in income, your total tax bill becomes $6,988.75. That’s a savings of $1,250 in taxes.

Because you pay so much less in tax, it’s easier to save money. Every dollar you save costs less than a dollar when all is said and done.

Unfortunately, the government doesn’t let you get away completely tax-free. Instead you have to pay income tax on any amount you withdraw from your IRA in retirement. That’s why traditional IRA’s are known as “tax-deferred” accounts. You defer the taxes to a later date.

So long as your tax bracket in retirement is lower than it was when you contribute to the IRA, you come out ahead. For most people, that will be the case since they will earn more money while they are working than while they are retired.

Roth IRAs

Roth IRAs invert the benefits of traditional IRAs. You pay the tax on the amount that you contribute up front. In exchange, you don’t have to pay any taxes on money you withdraw from the account in retirement.

Roth IRAs are ideal for people who don’t make much money, but who expect their income to rise over the course of their careers. If you expect to be in a higher tax bracket in retirement than you are currently, use a Roth IRA to save.

Another benefit of Roth IRAs is that you can withdraw contributions, but not earnings, without paying a tax penalty. While you should avoid making any withdrawals before you retire, this feature means that your Roth IRA can help you pay for dire financial emergencies.

What to Look for in an IRA Savings Account

When you’re comparing IRA savings accounts, there are a few things to look out for.

Monthly Fees

Many banks charge monthly fees on their savings accounts as a way to pay administrative costs or pad their bottom lines. Most of these accounts have requirements, such as minimum balances, that you can meet to avoid the fees.

Since you’ll be keeping your money in the IRA savings account for a long time, possibly even decades, look for accounts with no fees. You could also opt for an account with fee waiver requirements you can easily meet.

Interest Rates

The goal of an IRA is to help save for retirement. You don’t just want to put your money in the account and let it sit there for years until you retire. You want your money to make money for you. Plus, inflation can reduce the value of your savings if you don’t earn any interest on the account.

Look for the IRA savings account that pays the best interest rate. Generally, you’ll find this at online banks since they are cheaper to run and can afford to pay better rates. Make sure to pay attention to any minimum balance requirements, as some banks only pay the best rates on accounts with high balances

Excessive Withdrawal Fees

Some banks, including (due to federal regulation) all online banks, charge fees for making too many transactions in a single month. While this probably won’t be an issue while you’re contributing to the account, it’s still something to think about. You don’t want to be able to withdraw money from the account when you retire without incurring a hefty fee.

Traditional vs. Roth Availability

Make sure the bank you choose offers the type of IRA you want. Most banks that offer IRA savings accounts will offer traditional IRAs. Not all will offer Roth IRAs. If you want to open a Roth IRA savings account, make sure the bank you choose offers them.

Some banks even offer IRA savings within an SEP IRA, which is a special IRA for business owners and self-employed individuals.

Conclusion

IRA savings accounts won’t offer as much return as investing the money in your IRA could, but they will offer significant stability. Use this advice to choose the right account for your situation.