Should you open an IRA with your bank?
Saving for retirement is crucial for Americans who want to plan for their golden years. Fortunately, there are various tools you can use to plan for life after work, with individual retirement accounts (IRAs) being among the most popular. There are several types of IRAs, each with its own features and benefits, such as Traditional, Roth, Rollover, Inherited, and Custodial IRAs. You may see IRAs advertised at your local bank, but they’re not always the best place to open an IRA. A bank IRA does offer benefits that will help some, but it may hinder others’ plans. Here’s what to know about bank IRAs and top alternatives to grow and protect your wealth.
What is a bank IRA?
In most cases, a bank IRA combines two types of accounts that enable individuals to save for retirement. IRA accounts can be opened at banks, brokerages, or other financial institutions. The most common types are Roth IRAs and traditional IRAs. Typically, bank IRAs are held in either a savings account or a certificate of deposit (CD). These accounts must adhere to IRA rules, which regulate contributions, withdrawals, and account management. Contribution limits and tax benefits are governed by the Internal Revenue Code. Account fees may vary depending on the financial institution and the specific IRA account you select.
Larger banks, such as Bank of America or Chase, may offer access to trading capabilities, but these resources may have some limitations. “For instance, you may just be given access to a brokerage account where you can trade. Or their service levels are very high, similar to private wealth management, where the fees also tend to be high,” says R.J. Weiss, CFP® and founder of The Ways to Wealth.
If your bank doesn’t provide access to a brokerage account, you may be stuck with either a savings account or a CD for retirement planning purposes. Bank IRAs held in savings accounts or CDs are typically insured by the Federal Deposit Insurance Corporation (FDIC). However, regulatory protections applicable to bank IRAs differ from those for investment accounts, and it’s important to understand what protections apply to your retirement account.
IRA savings accounts vs. IRA CDs vs. Roth IRA
Savings accounts and CDs are banking products that pay interest on your savings. An IRA savings account is a little different from a normal savings account. You deposit funds into the account, and it earns interest. The account is FDIC-insured, providing peace of mind.
However, IRA savings accounts have the same contribution limits as other IRAs. For 2025, you can contribute up to $7,000 if you are under 50, and $8,000 if you are 50 or older. These accounts also offer tax benefits. With Roth IRA savings accounts, you contribute after-tax dollars and can withdraw funds tax-free in retirement if certain conditions are met. Traditional IRA savings accounts may allow tax-deductible contributions, and the earnings grow tax-deferred until you withdraw them. When you take money out, it is taxed as ordinary income based on your tax rate at that time, and withdrawals are subject to federal tax rules.
An IRA CD functions a little differently. Like basic CDs, your money sits for a specific term, from months to years. Withdrawing funds early may result in the forfeiture of some interest.
Interest rates are commonly higher than those found in a savings account, so there’s an opportunity to earn more on your savings. Bank CD IRAs face the same contribution limits as IRA savings accounts. Consulting a tax advisor can help you understand the tax consequences of your IRA contributions and withdrawals.
Pros of opening a tax-deductible IRA with your bank
For people asking themselves, “Should I open an IRA with my bank?” there are some compelling reasons to consider it. For people nearing retirement, a bank IRA may provide the stability they’re seeking. These are some benefits of opening a bank IRA at your local branch:
Protection: Bank IRAs offer FDIC protection as they’re either a savings account or a CD. This extends protection of up to $250,000 on your savings, even if your bank fails. In contrast, investment accounts are protected by the Securities Investor Protection Corporation (SIPC), which safeguards securities in brokerage accounts but does not cover cash deposits. The regulatory protections applicable to bank IRAs differ from those for investment accounts, so it’s important to understand which protections apply to your assets. It’s not possible to find this with many other investment vehicles.
Effortlessness: Selecting a savings account or CD requires minimal effort. Like basic savings accounts, you can automate transfers into a bank IRA savings account. A bank CD IRA functions similarly to basic CDs, so there’s minimal work required to manage it, unlike bond or stock investments. Bank IRAs do not offer related custody services or trading or custody services typically found in brokerage accounts.
Lower risk: All investments carry some level of risk. Stock portfolios rise and fall with market fluctuations. That’s not the case with bank IRAs. Your money doesn’t lose value, and you can confidently know what amount of interest you will receive on your cash. Bank IRAs do not provide direct investment in stocks or mutual funds, unlike brokerage IRAs.
Minimal fees: It’s not uncommon to pay fees for most investments. Trading fees, expense ratios, and more can erode earnings. Bank IRAs commonly carry modest fees, if any at all.
Tax advantages: Bank IRAs extend the tax advantages found in Roth and traditional IRAs. Admittedly, the same advantages are available in an IRA you open with an online brokerage or financial advisor.
If you manage much of your banking with one institution, opening a bank IRA can provide additional benefits.
“Some banks have service tiers where the more funds you hold, the more access you get to different offerings, such as a better rate on a cash-back credit card, higher interest on savings, or a discount on a loan,” notes Weiss. These potential perks could make opting for a bank IRA worthwhile for a DIY person. However, the best IRA accounts may offer more investment options, features, and access to brokerage services that differ from standard bank offerings.
Cons of opening an IRA with your bank
Regardless of the simplicity and security found in a bank IRA, there are some considerable downsides to the investment vehicle. For the wrong individual, using a bank IRA can significantly impact retirement planning. Here are the top drawbacks to a bank IRA.
Contribution limits: Most IRAs are subject to the same contribution limits. However, making a full contribution to an IRA, housing stocks, or exchange-traded funds (ETFs) has the potential for substantial growth over time. The same is not true for a savings account or CD. Tax implications aside, people with excess funds may benefit more by simply opting for a basic high-yield savings account or a CD ladder on top of a basic IRA.
Investment requirements: It’s not uncommon for CDs, particularly those offering higher interest rates, to require a minimum amount. If you don’t have the minimum amount, you will lose out on better rates.
Early withdrawal penalties: If you open a bank CD IRA and need access to the funds before maturation, you may forfeit earnings. The industry doesn’t have a standard baseline, so it depends on your bank.
Limited returns: Stocks, mutual funds, and ETFs commonly outpace returns found in savings accounts and CDs. Bank IRAs offer limited IRA investments compared to brokerage accounts. IRA investors seeking growth may find bank IRAs too restrictive. In fact, returns from a savings account or CD may not even keep pace with inflation, causing you to lose money in the long run. This can negatively affect your retirement savings over time.
Illiquid: If you choose a CD, your money is typically tied up for the duration of the term. This may cause problems if an emergency arises or you’re presented with a better investment opportunity.
Bank IRAs primarily offer fixed-income investments such as CDs and savings accounts, which can be too conservative for those seeking higher returns. When comparing bank IRAs to other retirement plans or a more diversified retirement plan, alternatives like low-cost mutual funds can offer greater growth potential. There are also management fee differences between bank IRAs and other providers, which can impact your overall returns. Mutual fund choices available outside of bank IRAs provide more diversification and growth opportunities. Remember, investing involves risk, and the risk profile of bank IRAs is different from that of stock or mutual fund investments.
Smaller financial institutions can pose more problems, notes Weiss. “Another weakness, more common at smaller banks, is that they essentially just give you a savings account, not an investment account. So all you are really earning is interest,” says Weiss. Earning interest may be desirable, especially for a risk-averse investor, but over time, it misses out on the growth available via mutual funds or ETFs.
Who is a bank IRA best for?
A bank IRA is really best suited for investors who prioritize stability and avoiding loss of their resources, but it’s important to consider IRA rules that may affect eligibility and benefits. For retired individuals or those nearing retirement, a bank IRA could be a valuable tool to help protect some of your capital, albeit to a limited extent.
When choosing among different IRA accounts based on your needs, consider how each option aligns with your retirement goals. These IRAs are typically not suitable for a younger investor who has decades to work before retiring. Younger investors should generally opt for a basic IRA that best suits their current and future tax situations, while also maximizing IRA contributions for long-term growth.
Bank IRAs usually offer subpar returns compared to the stock market. Younger investors will want to select a well-balanced portfolio that works alongside participating in an employer’s plan such as a 401(k) or opening a Roth IRA account, to put them in the best position possible to achieve their retirement goals.
Top alternatives to a bank IRA
Bank IRAs are well-suited for nervous investors who are concerned about protecting against loss. Although understandable, there are better options that may provide access to growth-based investments without incurring significant risk. Opening a retirement account with a provider that matches your needs is essential.
Robo-advisors can be a good first choice for many novice investors. They handle much of the heavy lifting for you, often with limited fees, and offer IRA investments managed by these platforms. Charles Schwab and Schwab Intelligent Portfolios are leading options with no management fees. “I would recommend a robo-advisor as a good starting point,” says Weiss. “Robo-advisors tend to limit your investment options to only their recommended portfolios, so you are not faced with dozens of choices.”
Robo-advisors follow a simple methodology. You answer a few questions to help them understand your appetite for risk and goals. The robo-advisor takes your answers, puts you in a suitable portfolio, and adjusts as time passes.
A target-date retirement fund is another legitimate alternative for newer investors. You may even find one at your bank if it offers access to a brokerage account. “These are simple, practical portfolios where one might debate room for improvement, but if the goal is just to get started with something you’re comfortable with, they are a good choice,” Weiss adds.
If you want more investment choices, consider reputable providers like Fidelity Investments, Fidelity Brokerage Services LLC, and National Financial Services LLC. They offer brokerage services and direct investment options. Interactive Brokers is also a good choice for active traders who want access to a wide range of investments, including mutual funds and global markets. These providers are often ranked among the best IRA accounts for 2025.
If you’re interested in cryptocurrencies, Fidelity Digital Assets and Fidelity Digital Asset Services offer secure custody and trading services with strong regulatory protections.
For risk-averse investors, Treasury securities are a safe alternative with various maturity options.
Regardless of your answer to “Where is the best place to open an IRA account?,’” considering account fees and how they compare across providers is vital to the long-term health of your portfolio. Fees can easily erode a portfolio over time. “The way I like to look at it is if the market only returns 8% a year, and inflation takes away 3%, that leaves about 5% of after-inflation adjusted returns. So, if a large chunk of that, say 1%, is then going towards fees, that is 20% of your returns,” says Weiss.
That fee may be worthwhile to some people, but if it doesn’t make sense for your needs, you could be forfeiting too much. Furthermore, a bank IRA may entice you with next to no fees, but the paltry returns can be equally ruinous if it’s not suitable for your situation. For complex investment choices or questions about tax implications, consider consulting a tax advisor for guidance. If you are considering a Roth IRA, remember the ability to contribute after-tax dollars for potential tax-free withdrawals.
Bottom line: Should I open an IRA with my bank?
A bank IRA can be a good retirement planning solution for the right individual. It allows you to protect some of your capital, earn competitive interest rates, and take advantage of FDIC coverage. While those are beneficial, opening an IRA at your bank can have long-term, detrimental effects on the retirement portfolios of new and young investors. If your bank doesn’t offer access to a brokerage account through its IRA, it’s likely best to consider another avenue to save for retirement.
