What Is a Guaranteed IRA?

The Internal Revenue Service permits you to invest your individual retirement account savings in various financial instruments. Its only exclusions are collectibles or life insurance. While you may earn good returns by placing your IRA money in mutual funds or stocks, you could also lose money if share prices fall. Certain investments, such as certificates of deposits, are guaranteed to return a specific percentage for a specific period. While guaranteed IRAs can't lose money, they may not be your best investment choice, especially if you have decades to go before retirement.

Money Market Accounts and Certificates of Deposit

The most common guaranteed IRAs are those offered by banks or credit unions insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration. Putting your IRA money in a certificate of deposit guarantees you will receive a stated amount of interest for a period ranging from six months to several years, depending on the terms of the CD. In recent decades, CD returns have been meager, but you won't lose your principal even if the bank or credit union fails if your account is worth $250,000 or less. That's the FDIC and NCUA limit for each depositor in an insured bank. If your IRA monies are worth more than that, consider investing them in different financial institutions for complete protection.

Bank and credit union money market accounts are also guaranteed, although the interest rates may change more frequently than with CDs. If you withdraw money from your CD before the end of the term, financial penalties apply. That's not the case with money market accounts.

Tip

You may earn higher rates on your IRA CDs if you meet a financial institution's particular requirements. That might include a prior history with the bank or credit union or keeping a fixed percentage of your IRA assets in the account. However, internet-only banks generally offer higher rates than brick-and-mortar institutions.

Safety Versus Growth

You won't lose your principal directly if you stash your IRA savings in a CD or money market account, but you could lose money in the long run. As Bankrate points out, you must make sure your retirement money is adequate, and CD rates may not even exceed the inflation rate. Rather than put all of your IRA or other retirement assets in guaranteed accounts, go for growth in stocks or mutual funds when retirement is still years away. If the market goes through a "bear," or down, cycle, you still have time for your IRA assets to recover. As you approach retirement or actually retire, putting a certain amount of your IRA monies into guaranteed returns makes sense. That doesn't mean all of your retirement funds should go into guaranteed investments. You still need a diverse portfolio that balances risks and outstrips inflation.