A Roth IRA doesn't have a single interest rate—the rate depends on what you invest in

When you open a Roth IRA, you are not putting money into a savings account that pays interest. Instead, you are choosing where to invest that money—stocks, bonds, mutual funds, money market accounts, or certificates of deposit (CDs). Each of those investments has its own return, which varies by market conditions, the specific investment, and how long you hold it.

If you want a may provide return, you can invest your Roth IRA funds in a CD through your IRA provider. CDs currently pay between 4% and 5.5% annually, depending on the term length and the bank offering it. If you want growth potential, you can buy stocks or stock mutual funds, which have no may provide rate but historically average around 10% per year over long periods—though they can lose value in any given year. The choice is yours, and it shapes what your money earns.

Key Takeaways

  • A Roth IRA is an account type, not an investment itself, so there is no single interest rate that applies to all Roth IRAs.
  • Money market accounts and CDs held inside a Roth IRA currently pay between 4% and 5.5% annually, with rates varying by provider and term.
  • Stocks and stock mutual funds inside a Roth IRA have no may provide return but have historically averaged around 10% annually over decades.
  • Your Roth IRA provider (your bank or brokerage) offers a menu of investment options, and you decide which ones to buy with your contributions.

How Roth IRA investments work differently from savings accounts

A traditional savings account at a bank pays you interest on the balance you hold. A Roth IRA is a container—a tax-sheltered account—that holds investments. You fund the account with your own money (up to $7,000 per year if you are under 50, or $8,000 if you are 50 or older, as of 2024), and then you decide what to buy inside it.

The growth you earn—whether from interest, dividends, or price increases—stays inside the Roth IRA tax-free. When you withdraw money in retirement (after age 59½ and after the account has been open at least five years), you owe no federal income tax on those earnings. That tax shelter is the main advantage of a Roth IRA, not the interest rate itself.

Money market accounts and CDs: the may provide-return options

If you want to know exactly what your money will earn, you can keep your Roth IRA funds in a money market account or a CD. Money market accounts currently pay between 4% and 5.5% annually, though the exact rate depends on your provider and changes as the Federal Reserve adjusts interest rates. CDs lock your money in for a set term—three months, six months, one year, or longer—and pay a fixed rate for that period.

The trade-off is safety and certainty: you know what you will earn, and your principal is protected. The downside is that these rates may not keep pace with inflation over decades, and your money grows slowly compared to stock investments. Many people use a mix—some money in a CD for stability, some in stocks for growth.

Stocks and mutual funds: variable returns with growth potential

If you invest your Roth IRA in individual stocks or stock mutual funds, your return is not fixed. The S&P 500 index, which tracks 500 large U.S. companies, has returned an average of about 10% per year over the past 90 years—but that includes years when it lost 20% or more and years when it gained 30% or more.

The advantage is growth potential: over long periods, stocks have outpaced inflation and bonds. The disadvantage is volatility and the risk of short-term losses. Because a Roth IRA is meant for retirement—money you will not touch for decades—many people use stocks or stock mutual funds inside their Roth IRAs to take advantage of that long time horizon.

How your provider determines what investments are available

Your Roth IRA provider—whether it is a bank like Chase, a brokerage like Fidelity or Vanguard, or an online platform like M1 Finance—controls the menu of investments you can choose from. A bank may offer only CDs and money market accounts. A brokerage typically offers stocks, bonds, mutual funds, exchange-traded funds (ETFs), and sometimes CDs as well.

When you open a Roth IRA, you choose your provider first, then you choose your investments from what they offer. If you want access to a wide range of stocks and low-cost index funds, a brokerage is usually the better choice. If you want simplicity and a may provide return, a bank CD might be enough.

What happens to your Roth IRA earnings over time

One of the biggest advantages of a Roth IRA is that your earnings compound tax-free. If you invest $7,000 in a stock mutual fund that returns 8% in year one, you earn $560. In year two, you earn 8% on $7,560, not just on your original $7,000. That compounding effect accelerates over decades.

Because you do not pay taxes on those earnings until you withdraw them—and in a Roth IRA, you never pay taxes on may have access to withdrawals—all of that growth stays in the account and keeps working for you. This is why starting a Roth IRA early, even with small contributions, can result in significantly more money by retirement than starting later with larger contributions.

Comparing Roth IRA returns to other retirement accounts

A traditional IRA works the same way: you choose your investments, and the return depends on what you buy. The difference is that traditional IRA withdrawals are taxed as income in retirement, while Roth IRA withdrawals are tax-free. A 401(k) through your employer also lets you choose investments, though the menu is usually smaller than what a brokerage offers.

The "interest rate" on any of these accounts is not set by the account type—it is set by the investments inside. A Roth IRA with CDs will earn less than a Roth IRA with stocks, but it will also be less risky. The account type determines the tax treatment; the investments determine the return.

Frequently Asked Questions

Can I move my Roth IRA to a different provider if I want better returns?

Yes. You can transfer your Roth IRA from one provider to another without tax consequences. This is called a trustee-to-trustee transfer. You contact your new provider, they handle the paperwork, and your money moves directly. You can do this as often as you want, though it may take a few weeks to complete.

What if I want to switch from CDs to stocks inside my existing Roth IRA?

You can sell the CD and buy stocks with the proceeds, all within the same Roth IRA account. There are no taxes or penalties for moving money between investments inside a Roth IRA. The money stays in the account and keeps growing tax-free.

Do I have to pick one investment type, or can I split my money between CDs and stocks?

You can split your money however you want. Many people put some in CDs for stability and some in stocks for growth. This is called asset allocation, and it is a common strategy to balance risk and return based on your age and how soon you need the money.

What happens if my investments lose money in a Roth IRA?

You can withdraw your original contributions at any time without penalty, even if they have lost value. You cannot withdraw earnings without penalty until age 59½. If your investments are down when you need the money, you can choose to wait for them to recover or withdraw what you contributed and leave the rest to grow.

Is there a minimum return I should expect from a Roth IRA?

No. Your return depends entirely on what you invest in. A money market account might return 5% this year. Stocks might return 15% or lose 10%. There is no minimum, and there is no may provide. That is why it matters what you choose to buy.