Guide: How to Find the Best Roth IRA Interest Rates to Boost Your Nest Egg

When it comes to retiring, we know you want to have as much money as possible for confidence and assurance in your older years. Opening an IRA or Roth IRA in your younger years is a great idea.

We are here to show you how to get the best IRA rates of return.

This article will help answer many of your questions about IRAs and IRA rates, including:

  • What is an IRA?
  • How are traditional IRA interest rates and/or Roth IRA interest rates calculated?
  • What are ways to find the best IRA rates or the best Roth IRA rates to retire with more money?
  • Which financial institutions offer the highest IRA rates?
  • What is an IRA rate of return/Roth IRA rate of return?

This information, along with our six tips for finding the best IRA/Roth IRA interest rates, will help you move forward with understanding and confidence.

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What Is an IRA?

IRA stands for individual retirement account. Sometimes, IRAs are referred to as individual retirement arrangements. While we will focus on traditional IRAs and Roth IRAs in this article, there are actually four main types:

  • Traditional IRA
  • Roth IRA
  • SEP (Simplified Employee Pension) IRA
  • SIMPLE (Savings Incentive Match Plan for Employees) IRA

One of the biggest things to realize is IRAs are not investments themselves. They are a an account. However, you can add investments to your IRA to start earning IRA rates of return. For example, you can add a mutual fund, some stocks, or certificates of deposit to the IRA.

best ira rates

Image Source: Retirement Investments

In a nutshell, all or some of your retirement investments can be held within the IRA account in order to earn the best IRA rates. It is a tool for investment.

IRAs have contribution limits. For 2016, the contribution limit to an IRA account was $5,500. Those over 50, however, could add an additional $1,000 – totaling $6,500.

What Is The Difference Between IRAs And Roth IRAs?

Throughout this article, we will be referring to both IRA and Roth IRA rates. Both traditional IRAs and Roths are individual retirement accounts that differ mostly in regard to taxes.

  •  Roth IRA has tax-free distribution. This means you do not deduct your contribution from that year’s taxes. But since you paid taxes on it then, you do not have to pay taxes when you pull it out in retirement.
Understanding IRA Rates Of Return

The way you earn money through IRA rates or Roth IRA rates are not exactly the same as a savings account or a certificate of deposit. These other types of accounts have clearly defined interest rates. You can calculate exactly how much money you will make.

In contrast, an IRA rate of return is the combination of all the investments within your IRA. For example, maybe you invested in some stocks and bonds. Then perhaps you had a certificate of deposit in there too.

The IRA interest rates (or Roth IRA interest rates) you will receive in retirement are from those investments. Depending on the institution you choose, you can be hands-on in dealing with this investments or entirely hands-off.

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How to Find the Best IRA Rates & Roth IRA Rates

When you decide to open up your IRA, it is important to choose the bank that offers the best options for high IRA interest rates and Roth IRA interest rates.

Here are six simple steps that will help you find the best IRA rates today that will lead you to a better retirement tomorrow.

1. Contribute While Young for a Higher IRA Rate of Return

The reason you should start contributing to an IRA/Roth IRA when you are young is two-fold. The first point is simple: you will have more money saved by the time you retire. The second point is more interesting: it has to do with boosting IRA rates or Roth IRA rates with compound interest.

Here is how compound interest works, using numbers simpler than typical IRA rates to make it easy. Say you put $1,000 into an account that earns 5% interest. At the end of the year, you have $1,050. Without compound interest, that extra $50 would stay separate, and you would only earn another $50 on your $1000 principal again next year.

But when you have compound interest, that $50 is included in next year’s earnings. Instead of $50 again, you earn $52.50. At first the number is small, but after 30+ years, the number is substantial. This is how an IRA or Roth IRA rate of return works.

When you start young, your compound interest grows and grows and grows in your IRA, leaving you with the best IRA rates or best Roth IRA rates.

2. Contribute Early for a Higher IRA Rate of Return

Place each year’s funds into your IRA account early in the year for the highest IRA rates and gains throughout your life. It is generally agreed upon among financial professionals that one way to get the best IRA rates at retirement is to contribute your yearly IRA limit in January – or as early as possible.

In fact, one study compared two account types. Both groups contributed the full amount of $5,500 each year for ten straight years. The only difference was one group contributed the full amount in January. The other group contributed at the latest possible time (tax day of the following year).

How did it affect their IRA rates of return? The group who contributed early in January each year earned an average of $14,507 more in IRA rates on average than the late group.

3. Contribute More for a Higher IRA Rate of Return

For the highest IRA rates, you should contribute the maximum amount and contribute it each year. We have already shown how contributing early brings the best Roth IRA rates and IRA rates, but it is always better to contribute late than not at all.

Since you do have until the following year’s tax day to send in your contribution (For 2016, you can send in your IRA contribution until April 17, 2017), there is some leeway if you were short on money toward the beginning of the year.

Contributing the most you can each and every year gives you a few benefits toward your IRA rates for retirement:

  • When you put your extra cash in your IRA, you are no longer able to spend it on any “extras” you don’t need. Your money is going straight toward growing in those IRA interest rates or Roth IRA interest rates.
  • You are adding to the compound interest of IRA rates. That money may grow slightly in your savings account, but it will grow exponentially in your IRA.
  • You take advantage of the current IRA rates of growth today (or the current Roth IRA rates of growth). Which means you will have more confidence in retirement in the future.

4. Compare Banks for Best IRA Rates or Roth IRA Rates

The first three tips have the greatest impact on the best IRA rates and the best Roth IRA rates. The next important step in getting the greatest IRA rates of return is to choose your IRA account carefully.

In the same way no checking account or savings account is the same with the same benefits, IRA accounts offer different methods, fees, and commissions that will greatly affect your IRA interest rates and Roth IRA interest rates.

Since your IRA account will hold all your retirement money, stocks, bonds, certificates of deposit, etc., and may even be helping you trade those stocks and bonds, it is necessary to choose a reputable institution for the best IRA rates at retirement.

Related: Do I Have Enough to Retire? Find out If You Have Enough Money for Retirement

Online Resources to Compare IRA Accounts

Here are two helpful online resources that give you more information on IRA accounts so you can make the best decisions. The more you know, the higher your IRA interest rates or Roth IRA interest rates will be when you retire.

ira rates

Image Source: Compare IRA Accounts

NerdWallet: One of the most comprehensive resources to compare IRA accounts in order to find the best IRA rates is through NerdWallet. Their pages, “Best IRA Accounts: 2016 Top Picks,” and “Best Roth IRA Accounts: 2016 Top Picks,” offers the following information:

  • Best IRA providers overall
  • Best IRA providers with no account minimum
  • Best IRA providers for hands-off investors
  • Best IRA providers for active traders
  • Best IRA providers for low costs

U.S. News: This article lists the “8 Places To Open Your First IRA” and offers their suggestions on where to open IRA accounts for the following categories:

  • Brokers
  • Mutual fund companies
  • Banks
  • Automated investment services

5. Choose Low IRA Rates of Commission

Your bank or financial institution will take some sort of commission for each trade they do for you. Choosing a low-cost commission account can have a great effect on your IRA interest rates or Roth IRA interest rates.

NerdWallet offers a clear list of what each of the main financial institutions charge for current IRA rates of commission and current Roth IRA rates of commission on trades for traditional and Roth IRA accounts.

To keep your IRA rates or Roth IRA rates high when you pull out your money for retirement, make sure that if the account you choose has higher IRA rates of commission, other benefits outweigh that cost.

6.  Diversify Your Account for Safe IRA Interest Rates

Remember that an IRA itself is not an investment; it holds your investments. Like in any other financial matter, diversifying your account is important for a steady IRA or Roth IRA rate of return.

IRAs can include:

  • Annuities
  • Stocks
  • Bonds
  • Mutual funds
  • Exchange-traded funds
  • Unit investment trusts
  • Real estate

To keep the best IRA rates or the best Roth IRA rates – and to keep them consistent – you will want to have a mixture of the more risky investments and the safest investments.

Talking to a financial advisor is an excellent idea in this case. He or she can help you make sure you are getting the highest IRA rates of return possible without losing on too many risks.

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Which IRA Is for Me?

Now that we understand IRA rates and the best ways to go about finding the highest IRA rates, it is now time to decide which IRA account is right for you.

  • First decide if you would rather pay taxes on the retirement money when you put it into your IRA (Roth IRA) or when you pull it out of your IRA (Traditional IRA)
  • Then decide how hands-on you want to be in building your IRA rates
  • Next, discuss your options for growing your IRA interest rates or Roth IRA interest rates with a financial advisor/planner
  • Use tools or your financial planner’s help to approximate your current IRA rates of return or current Roth IRA rates of return if you start contributing money now vs. five years from now

After doing some of this homework, you should be able to feel better about choosing which IRA account you want from a particular financial institution. Then you can start building up your IRA rates and go into retirement with confidence.

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