Insurance Protection

• One of the selling points of a CD is that the money is protected by the FDIC. As long as you deal with an FDIC-insured bank, the money you invest is protected, up to $250,000 per account. On the other hand, the money you put into an IRA is not federally insured, and you could lose money as well as make it. The exception is if you put your IRA money into a CD or bank money market account; in that case, you have the same FDIC protections you would have with a non-IRA account.
  
  

Tax-Deferral

• When you invest money in a traditional IRA, that money grows and compounds on a tax-deferred basis. You do not pay taxes on any dividends, interest or capital gains accrued along the way. The only time you pay taxes is when you actually withdraw the money in retirement.
  
  If you choose to invest in a Roth IRA, you deposit after-tax money, but you can withdraw the money completely tax-free in retirement. If you hold a CD in a taxable account, you have to pay interest on the interest it generates. The bank sends you a 1099-INT form each year the CD is active, and you must report the amount of interest earned to the IRS when you do your taxes.
  
  

Investment Options

• If you have have an IRA account, you can invest the money any way you choose, using a combination of individual stocks and bonds, stock and bond mutual fund and fixed-income instruments like money market accounts. You can also choose to invest part or all of your IRA in a CD at your local bank if safety is your main goal.
  
  Your choices are more limited with a CD. You can choose a number of different maturities, including ranging from as little as three to six months to five years or more. Each CD has its own set interest rate, and you need to compare rates carefully to choose the best investment.
  
  

Contribution Limits

• When you purchase a certificate of deposit, your only limitation is the one imposed by banks--some banks impose dollar limits on the amount investors can put into a single CD, and you never want to exceed the FDIC insurance limit of $250,000. With an IRA, on the other hand, your annual contribution limit is set by the IRS, and if you exceed that limit you pay a penalty to the tax agency. For 2011, the IRS says you can contribute $5,000 to an IRA account, plus an extra $1,000 if you are 50 years of age or older. That amount may be less depending on your income and whether you are retired by a retirement plan from your employer.