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Discover IRA Review
Discover Bank Roth and Traditional IRA CD/Savings rates. Discover IRA review for 2024. Retirement
account rating, cost, fees, promos.
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Discover Bank IRA Review
As economic conditions shift, more commercial banks are entering the retirement account market to diversify their income streams. This competition benefits customers, as banks offer better incentives to attract account holders.
Discover Bank is gaining attention in the retirement account space due to its focus on relatively high-yield fixed-income options like savings IRAs and IRA certificates of deposit (CDs).
Why Fixed-Income IRAs?
Since Discover Bank is a commercial bank, it cannot offer equity or securities trading like stocks. Instead, it provides fixed-income options. While stocks generally outperform fixed-income products over the long term, there are important considerations:
1. You can have multiple IRA accounts – the only limit is the annual maximum deposit of $6,000, which can be spread across as many accounts as you choose.
2. With the current economic uncertainty and stock market volatility, a guaranteed return from Discover Bank’s savings IRAs and CDs might be more appealing, especially for those nearing retirement.
3. You can transfer the IRA to a brokerage that allows stock trading whenever you're ready. This allows you to earn a guaranteed rate with Discover before moving to equities when the market shows signs of recovery.
Understanding the benefits of fixed-income IRAs is crucial in today’s environment, and Discover Bank offers some particularly attractive options.
High Yield Options
Savings accounts and CDs often get criticized for their low rates and returns, but Discover is changing that perception by offering competitive rates on savings IRAs and CDs, especially compared to industry averages.
Discover IRA CD
Discover’s IRA CD rates currently range from 1.50% (three-month CD) to 4% (ten-year CD). A CD is “locked” until it matures, meaning you’re guaranteed the interest accrual, but you can’t withdraw from or close it until it reaches maturity.
This makes CDs less suitable for those who want to actively manage their IRA, though the higher rate may compensate for the reduced flexibility.
Discover offers a rate overview tool that shows the current CD rate by maturity, compares it to competitors, and lets you calculate potential earnings based on your investment. Below is a sample of short, medium, and long-term options assuming the annual maximum IRA contribution of $6,000:
| Maturity | Interest Rate | Closest Competitor Rate | Earned Interest (Total) |
|---|
| 3-month | 1.50% | 0.05% | $22 |
| 12-month | 3.75% | 3.75% | $224 |
| 24-month | 3.80% | 2.00% | $464 |
| 7-year | 4.00% | 0.25% | $1,189 |
| 10-year | 4.00% | 0.25% | $2,879 |
As shown, compound interest at a guaranteed rate can be highly beneficial over the life of a CD. For those within ten years of withdrawing from their IRA or seeking the security of a guaranteed rate, Discover’s IRA CDs are among the best available today.
Discover’s IRA CDs come with no fees. You can fund the account through regular contributions, a rollover from other retirement plans, or transfers from external IRAs with a brokerage or bank.
The minimum opening deposit for an IRA CD with Discover Bank is $2,500.
Discover Savings IRA
Discover Bank also offers savings IRAs for those who prefer liquidity over the fixed term of a CD. Savings IRAs combine the benefits of a savings account with those of an IRA, and Discover offers a higher rate than you’ll typically find elsewhere.
Currently, Discover’s savings IRAs yield 2.75%. Unlike CDs, this rate can fluctuate over time, potentially rising as the Federal Reserve continues to increase rates. Though lower than most CD options, the liquidity of a savings IRA makes it suitable for investors waiting for market volatility to subside before re-entering the stock market.
Discover provides a calculator to help you see how your cash will grow in a savings IRA at the current rate.
Like the IRA CD, the savings IRA has no fees. Additionally, there’s no minimum opening deposit. You can fund the account through deposit, rollover, or transfer from another institution.
Top Alternatives
Discover IRA Review Conclusion
Fixed-income IRAs might not be ideal for younger investors with plenty of time until retirement. Despite the current volatility, younger investors are usually better off dollar-cost-averaging into market funds, taking advantage of relatively low prices before they rise again.
However, for risk-averse investors or those nearing retirement who prioritize capital preservation, Discover’s savings IRA and IRA CDs are excellent options. Offering higher rates than competitors, locking in a guaranteed rate with a CD, or maintaining liquidity with a savings IRA are great ways to preserve your cash while still generating some returns.
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Updated on 7/2/2024.
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