Types

• There are several types of guaranteed IRAs. First, an IRA CD is an IRA that invests in a bank CD. An IRA share certificate is similar to a bank CD, except the issuing institution is a credit union instead of a bank. Finally, a fixed annuity IRA is an IRA that invests in fixed annuities and is issued by an insurance company.
  
  

Significance

• In the case of bank CDs, the issuing bank invests the money you deposit with them into a money market or they reloan the funds to borrowers. The returns generated by the banks investment activities provide the interest that they credit to your account. A share certificate represents an investment in a credit union. The credit union may loan out the money you invest with them and the interest generated provides the returns for the share certificate. An annuity is generally invested in bonds or bond-like investments and the interest generated by the bond investments provides the returns for the annuity.
  
  

Benefit

• The benefit of a guaranteed IRA is that the IRA cannot lose money. The issuing company guarantees your investment against loss. This means that you never have to worry about whether you must increase your savings to make up for any investment losses.
  
  

Disadvantage

• The disadvantage to guaranteed IRAs is that the interest rate paid on your IRA is often low. Interest rates (as of 2010) may be between 1 and 3 percent. These rates may be higher for long-term deposits (in excess of 10 years). Because the rate is so low, the return on your investment may be overcome by the effects of inflation.