A bank IRA is a retirement savings account held at a bank, not a brokerage

An IRA account at a bank is a retirement savings account that you open directly with a bank—like Chase, Bank of America, or your local credit union—rather than with a brokerage firm or investment company. The bank holds the account and the money inside it. You decide how much to contribute each year (up to the IRS limit), and the bank pays you interest on the balance, usually through a certificate of deposit (CD) or a money market account. The money grows tax-deferred, meaning you do not pay income tax on the earnings until you withdraw it in retirement.

The key difference from a brokerage IRA is what happens to your money. At a brokerage, your contributions buy stocks, bonds, mutual funds, or other investments that you choose. At a bank, your money sits in a savings product—typically a CD or money market account—and earns a fixed interest rate set by the bank. You are not picking individual investments; the bank is simply holding your money and paying you interest.

Key Takeaways

  • A bank IRA holds your retirement savings in a CD or money market account earning a fixed interest rate, not in stocks or mutual funds.
  • You can contribute up to $7,000 per year (or $8,000 if you are 50 or older) to a traditional or Roth IRA at a bank, subject to income limits for Roth accounts.
  • Money in a bank IRA grows tax-deferred, and you owe no taxes on earnings until you withdraw after age 59½, with some exceptions.
  • Early withdrawal before age 59½ usually triggers a 10% penalty plus income tax on the amount withdrawn, though some exceptions exist.
  • Bank IRAs are FDIC-insured up to $250,000, making them lower-risk than brokerage accounts but also offering lower potential returns.

Traditional IRA versus Roth IRA at a bank

Banks offer both traditional IRAs and Roth IRAs. The difference is when you pay taxes and who can open one.

With a traditional IRA, you contribute money that may be tax-deductible in the year you contribute it (depending on your income and whether you have a workplace retirement plan). The money grows tax-deferred. When you withdraw in retirement, you pay income tax on the full amount withdrawn. You must start taking withdrawals at age 73 (as of 2023; this age changes based on federal law).

With a Roth IRA, you contribute money that is not tax-deductible. The money grows tax-deferred, and when you withdraw in retirement, you pay no tax on the earnings or the contributions. You can withdraw your contributions (not earnings) at any time without penalty. You are not required to take withdrawals at any age. However, you can only open a Roth IRA if your income is below a certain threshold, which varies by year and filing status.

How much you can contribute each year

The IRS sets an annual contribution limit that applies whether you open an IRA at a bank, a brokerage, or anywhere else. For 2024, you can contribute up to $7,000 per year to an IRA (either traditional or Roth, or a combination of both). If you are 50 or older, you can contribute an additional $1,000 per year, for a total of $8,000.

These limits change periodically. The IRS adjusts them for inflation, usually in $500 increments. You can contribute at any time during the year, but the deadline to contribute for a given tax year is typically April 15 of the following year (the tax filing deadline).

If you earn income from self-employment or own a small business, you may be able to contribute more through a SEP IRA or Solo 401(k), but those are different account types with different rules.

FDIC insurance and what it covers

Money in a bank IRA is FDIC-insured up to $250,000 per depositor, per bank. This means if the bank fails, the federal government guarantees your money up to that limit. This is a major advantage of bank IRAs over brokerage accounts, which are not FDIC-insured (though brokerage accounts are protected by SIPC insurance, which works differently).

The $250,000 limit applies to each IRA separately. So if you have a traditional IRA and a Roth IRA at the same bank, each is insured up to $250,000. If you have multiple IRAs at the same bank, they are added together for insurance purposes. If you exceed $250,000 across all IRAs at one bank, the excess is not insured.

If you have more than $250,000 to save for retirement, you can open IRAs at multiple banks to keep each account under the insurance limit.

Interest rates and what you actually earn

The interest rate on a bank IRA depends on the type of account and the bank. Most bank IRAs use a CD or money market account. CDs typically offer higher interest rates than regular savings accounts, but you must agree to leave the money untouched for a set period (3 months, 1 year, 5 years, etc.). Money market accounts offer lower rates but let you access your money more easily.

Interest rates vary widely by bank and change frequently. As of late 2024, some banks offer 4% to 5% on CDs, while others offer less. You can compare rates on bank websites or on rate-comparison sites. The rate you lock in depends on when you open the account and how long the CD term is.

Because bank IRAs earn a fixed rate, they are predictable but typically offer lower returns than a diversified investment portfolio at a brokerage. If you are young and have decades until retirement, a brokerage IRA with stocks may grow faster. If you are close to retirement and want safety, a bank IRA is more stable.

Withdrawals before retirement and the 10% penalty

If you withdraw money from a traditional IRA before age 59½, you owe a 10% early withdrawal penalty plus income tax on the amount withdrawn. For example, if you withdraw $10,000 at age 45, you owe $1,000 in penalty plus income tax on the full $10,000.

Some withdrawals are exempt from the 10% penalty, though you still owe income tax. These include withdrawals for a first home purchase (up to $10,000 lifetime), medical expenses above a certain threshold, health insurance premiums if you are unemployed, and may have access to education expenses. If you are disabled or have a serious illness, other exceptions may apply.

With a Roth IRA, you can withdraw your contributions (the money you put in) at any time without penalty or tax. You can only withdraw earnings before age 59½ if you meet specific conditions, such as a may have access to first-home purchase or a disability.

When you must start withdrawing money

With a traditional IRA, you must start taking withdrawals at age 73 (this age was 72 until 2022 and may change again). The IRS calls this a required minimum distribution or RMD. The amount you must withdraw each year is calculated based on your age and account balance. If you do not take the full amount, you owe a 25% penalty on the shortfall (reduced to 10% if you correct it within two years).

With a Roth IRA, you are not required to take withdrawals during your lifetime. This makes Roth accounts useful if you do not need the money in retirement and want to leave it to heirs.

Opening an IRA at a bank versus a brokerage

Opening a bank IRA is straightforward. You visit the bank in person or online, fill out an application, and choose whether you want a traditional or Roth IRA. The bank will ask for your Social Security number, address, and employment information. You then decide how much to contribute and whether you want a CD with a specific term or a money market account. The bank handles everything else.

A brokerage IRA requires you to make investment choices—which stocks, bonds, or funds to buy. This offers more potential for growth but also more risk and complexity. A bank IRA removes the investment decision; you simply earn whatever interest rate the bank offers.

If you are unsure about investing or want a may provide, predictable return, a bank IRA is simpler. If you want to build a diversified portfolio and are comfortable with market risk, a brokerage IRA may be better suited to your goals.

Frequently Asked Questions

Can I move money from a bank IRA to a brokerage IRA later?

Yes. You can transfer or roll over money from a bank IRA to a brokerage IRA at any time without penalty or tax. The process is called a direct rollover if the bank and brokerage handle it between themselves, or an indirect rollover if you receive the money and deposit it yourself (you have 60 days to do this). Ask your bank and brokerage for their rollover procedures.

What happens to my bank IRA if I change jobs?

Your bank IRA is separate from your job, so nothing happens to it. You keep contributing to it and earning interest regardless of employment changes. If you have a 401(k) at your old job, you can roll that into your bank IRA, but the IRA itself is unaffected by job changes.

Can I have both a traditional and Roth IRA at the same bank?

Yes. You can open both a traditional and Roth IRA at the same bank. However, your total contributions across both accounts cannot exceed the annual limit ($7,000 or $8,000 if 50+). For example, you could contribute $4,000 to a traditional IRA and $3,000 to a Roth IRA in the same year, but not $7,000 to each.

Is a bank IRA a good choice if I am young?

A bank IRA offers safety and predictability, but the interest rate may not keep pace with inflation over decades. If you are young and have time before retirement, a brokerage IRA with a mix of stocks and bonds historically grows faster. A bank IRA is better if you are risk-averse or nearing retirement and want to protect what you have saved.

What if the bank goes out of business?

Your money is protected by FDIC insurance up to $250,000. If the bank fails, the FDIC takes over and either transfers your account to another bank or pays you directly. You do not lose money as long as your balance is under the $250,000 limit per account type.