What is the difference between an IRA and a CD?

An Individual Retirement Account (IRA) allows you to save money in an account that has tax advantages. Every year, you can put in money on a pretax basis into a traditional IRA. This year, if you are under 50, you can put in up to $5500 a year. You can set up savings on a regular basis or put in irregular amounts. Then, when you take the money out after age 59 1/2, you will pay the income tax. For a Roth IRA, you put in taxed money and then your withdrawals at retirement are tax free. If at some time you need to withdraw the funds before 59 1/2 there is a hefty penalty and tax withheld. With IRAs, you are investing in mutual funds, stocks, real estate, etc. You need to be very aware of the fees charged, since it is easy to have any growth spent on those! Both Vanguard and Fidelity have low costs. Look into standard index funds--most of us do not need to pay for actively managed stocks.

A Certificate of Deposit (CD) is savings, usually through a bank or credit union. You purchase them for a set amount of time (higher interest rates for a longer time), and then wait to the end of the period for any dividend. Many banks automatically renew these, so you will want to be sure to note the timing. Many people "ladder" these, buying them at different periods and having them come due at intervals. If you need the money, you can have it, minus the interest you have earned.