If you’re just starting to invest, you may be confused and a little overwhelmed about the differences between an IRA and a CD—let alone how to choose which one is right for you. Although there are several distinctions between the two, in essence, one is a long-term savings account; the other is an investment in the financial markets. A bank representative can help you put your money into either instrument.

IRAs

Individual retirement accounts, or IRAs, are investment accounts with a tax incentive designed for long-term savings and growth. Money you deposit in a traditional IRA is tax-deductible, up to a specified amount. When you put money into an IRA, the bank invests it in a mixture of stocks, bonds, mutual funds, and CDs, depending on your investment strategy and priorities.

Banks often offer two types of IRAs: traditional and Roth. A traditional IRA is funded with pretax dollars. You won’t pay taxes on any gains until you make withdrawals in retirement. With a Roth IRA, you pay taxes on the money you deposit, but your disbursements later are essentially tax-free. Either approach might be right for you, depending on what you think your finances will look like in the future.

CDs

Certificates of deposit are a savings tool sold by banks, brokers, and financial firms. Unlike stocks, CDs pay a specified interest rate over a certain period of months or years, after which your principal is returned. Although the interest rates for CDs are often lower than the returns on other investments, knowing exactly how much you’ll earn makes CDs a safe choice for investors who want to balance out riskier investments. Depending on your financial plan, your IRA may contain CDs, in addition to stocks and other assets.

For over a century, FDIC-insured Citizens Bank in Byhalia has helped investors across northern Mississippi plan for the future. They offer the hometown service only a local bank can provide, along with services you might expect only from larger national institutions. Visit their website to learn more about their CDs and IRAs, call (662) 838-2146 with any questions, or drop by one of their three branch locations to open an account today.