Why You Shouldn’t Open Your Roth IRA at a Bank

By Triston Martin Updated on Jan 14, 2023
Accounts for Roth IRAs are available from various financial institutions, including Wells Fargo, Bank of America, and Chase. On the other hand, your Roth investments are often best handled by an internet broker.

Congratulations on making the smart decision to start saving for retirement with a Roth IRA, one of the most effective retirement savings vehicles available. That's a good financial move on your part. You will now need to provide a response to the following question: Where exactly should you set up the Roth IRA?

Roth IRAs may be opened in financial institutions as well as via online brokers. However, the selection of assets offered by each differs greatly; this may result in a significant disparity in the amount of money you have saved by the time you reach retirement age. This is why:

Bank Roth IRAs: The majority of bank Roth IRAs have a restricted number of investment options, the most common of which are a certificate of deposit or a money market account. Both of these options are, in essence, savings accounts. They shield you from the ups and downs of the stock market, but the returns they provide on your investment are much smaller.

Broker Roth IRAs: When you create a Roth IRA with an investment broker, you will have access to various investment options. This list will cover equities and stock mutual funds, which are subject to market fluctuations but provide much better return rates over the long term than certificates of deposit and money market funds.

Higher Risk, Higher Returns

Why would you choose a Roth IRA that is riskier than other options? Because it is prudent to assume some level of risk while working toward a goal with such a long time horizon as retirement. Because you are getting a salary while you are working and so do not require the money in your retirement account, it is perfectly OK for the balance of your retirement account to fluctuate from time to time. You need to keep making investments, and eventually, the rate of return on your money will rise to a greater level.

Then, when retirement is around five years away or so, and you will need the money you've saved to live on, you sell certain stock assets and purchase into investments with less volatility. This action is taken when your financial situation is looking very rosy. If there has been a drop in the market, you should hold off for a while until your account balance has recovered.

Consider the following if you're curious about the potential benefits of taking on stock market risk: Over the previous decade, the total stock market has generated returns of around 10% each year on an annualized basis. The highest-yielding savings accounts and certificates of a bank (CDs) offered by banks now pay less than 3%; in most cases, the yield is substantially lower.

And if the idea of selecting stocks or other assets is making you anxious, there is good news: you don't have to. Investing does not need a high level of expertise. Investing for retirement may be done in three relatively stress-free methods, outlined below. And here are some straightforward retirement portfolios to help you achieve your objectives.

Choosing a Roth IRA provider

It might be difficult to choose the best place to start your Roth IRA, partly because many financial institutions also function as investment advisers. For instance, you can open a Roth IRA with Bank of America. A certificate of deposit or a money market fund with a low yield will be used to invest your money. You also have the option of opening a Roth IRA through Merrill Edge, which is a division of Bank of America and is a brokerage firm. You will have access to a diverse range of investment opportunities there.

Similarly, you may open a Roth IRA with Wells Fargo Bank, which gives you access to savings accounts and certificates of deposit and offers rates ranging from around 0.01% to 1.6%. You also can open a Roth IRA with Wells Fargo Advisors, which offers you access to a wide range of investment options for your retirement savings.

What Should I Do Now?

We have evaluated and ranked the top Roth IRA accounts for those interested in opening a Roth IRA with a financial advisor or investment broker. If, on the other hand, you remain committed to the concept of a bank IRA, do some research to find the financial institution that provides the greatest interest rate.