This is Jeff Rose. Welcome to goodfinancialcents.com.
One of the more common questions I get regarding the Roth IRA is, “Jeff, what is the interest
rate that the Roth IRAs pay?” or “If I were to open up a Roth Ira today, what should I
expect would be the rate of return?” When I hear that question it makes me realize how
little people really know what the Roth IRA truly is. See, IRA stands for Individual Retirement
Arrangement. It does not stand for Investment that Returns A Lot or Interest Rate Account.
A Roth IRA is just a retirement vehicle you open up for retirement and then you place
different types of investments inside of that. The most common confusion comes when people
open up a Roth IRA at their local bank or credit union. When you open up a Roth IRA
there, most typically you are going to have CDs inside that Roth IRA and the CDs are going
to pay you depending on whatever the current interest rate is going on those investments.
That is why people think of the Roth IRA as an interest-paying investment and it is not.
If you were to open up the exact same Roth IRA at a brokerage firm or some type of investment
firm, inside of that you could have stocks, bonds, or other types of investments that
would pay depending on what they produce or what rate of return they did. As an example,
let’s say you opened up a Roth IRA at a brokerage firm and you wanted you buy an individual
stock. That individual stock, depending on the appreciation or if it paid a dividend
would decide what would be your rate of return at the end of the year. That is the biggest
difference between a Roth IRA at a brokerage firm or a local bank or credit union. That
is why I could see there would be some confusion. A Roth IRA is not an investment. It does not
pay an interest rate. The rate of return that you get in a Roth IRA depends on what investments
you place inside that. I hope that is a helpful tip on the Roth IRA rates of return and how
to get your best Roth IRA rate. If you want more information, head over to the blog, goodfinancialcents.com.
I have plenty more, and I look forward to seeing you over there. This is Jeff Rose,
goodfinancialcents.com The opinions voiced in this material are for
general information only and are not intended to provide specific advice or recommendations
for any individual. To determine which investment(s) may be appropriate for you, consult your financial
advisor prior to investing.