Should I Invest in Bank IRA’s?

In a previous post (shown at the link below), I discussed the different points to consider when choosing whether to choose a Traditional or Roth IRA for your Individual Retirement Account (IRA) needs/investing.

My Money Blog – Deciding Between a Roth and Traditional IRA

However, one thing I did not cover in this previous post on where to invest is analyze the different locations/institutions where an individual can open up one of these IRA’s (once you decided upon which IRA is right for you). This analysis will be the topic of today’s posting.

Note: In this analysis, we will go through several examples of products offered by different banking institutions. For simplicity, we will assume that you have chosen to go with a Roth IRA.

So, let’s get started with a little background of my own experiences.

A little background on what I’ve experienced
Back in around 2004 when I was just starting college, I had read several personal finance books and decided that a Roth IRA was best suited for my needs. So, I knew that I wanted to open up a Roth IRA, but I did not receive any guidance on where to open one.

Because of the lack of guidance, I turned to the closest banking institution to my circumstances, Bank of America, since that is the bank in which I currently held my checking account.

I proceeded through the online Roth IRA application steps on the Bank of America website, opened up the Roth IRA, and figured I was set until retirement!

However, I later realized that the Bank of America IRA was structured in such a way that I could only invest in low-yielding money market, savings, and Certificate of Deposit instruments. Even though all of these products are FDIC insured, I soon became aware that I would need to change to another IRA provider in order to invest in more risky (and therefore higher yielding) investment instruments.

Looking back on my actions now, I realize that I was rather ignorant. However, I believe this is a fairly common occurrence among beginning investors.

So, what do bank IRA’s offer?
At the link below, you can find the different types of investments offered for Roth IRA accounts at both Bank of America and CitiBank.

Bank of America Roth IRA Investment Options
CitiBank Roth IRA’s

As you can see on the website, you have the following options for how your Roth IRA funds are invested with Bank of America.

  • Lock your money in an FDIC insured Certificate of Deposit earning a 1.06% return for 1-3 years.
    • This is not appealing at all for young investors needing to earn a good return.
  • Place your money in an FDIC insured money market account earning < 1% per year.
    • Same comment as above.
  • Invest your money in mutual funds or individual stocks offered through Bank of America in partnership with Merrill Lynch.
    • As discussed before, it is a rule of My Money Blog followers that we do not invest in individual stocks, unless it is play money.
    • The mutual funds that Merrill Lynch offers are inferior to the mutual funds by Fidelity and Vanguard because 1) many are actively managed vs. index (increases fees) and 2) involve a sales charge / load (increases fees)

As you can see from the points above, to be perfectly blunt, Bank IRA’s are inferior and should not be bought.

Then where should I open up an IRA?
In my mind, there are really only two options for opening up an IRA account – Vanguard and Fidelity.

Both companies offer extremely low fees and a broad range of international, fixed income, US domestic, and index mutual funds.

And, if you demand to have FDIC insured protection of your investments (not recommended unless you are already in retirement), Vanguard and Fidelity both offer Certificate of Deposit options as well.

Key Takeaway
Bank IRA’s are by far, inferior to IRA’s offered by Vanguard and Fidelity because Bank IRA’s offer lower returns and a reduced amount of investment options.

Keep on learning!


To receive updates on topics such as this one as soon as they are published, click on the link below to subscribe to My Money Blog:

Subscribe to My Money Blog via Email

About the Author Jacob A Irwin

Hi folks! My name is Jacob. I am the owner and operator of My Personal Finance Journey. I started this blog in January of 2010 and have enjoyed the journey ever since. Since finishing up graduate school in Virginia in 2014, I have been working in biopharmaceutical development in Colorado. You can read more about me and this site here​. Please contact me if you have any questions!

follow me on:

Leave a Comment:

Payday lenders says May 6, 2011

The keep the change program works nicely each time you have to make a purchase with your debit card, the balance is curved up to the next dollar and the variation is transmitted from your checking account to your savings account.

    MyPerFinJourney says May 6, 2011

    Thanks for commenting! But they don't offer the Keep The Change Program for the Bank IRA products in this post though right?
    My recent post Petsmart vs Petco – Which Is More Affordable – Guest Post Live Today At Budgeting In The Fun Stuff

Add Your Reply

Subscribe To Our Newsletter!

Join 1000+ Subscribers, Start Your Own Personal Finance Journey, & Get Exclusive Content.