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Roth IRA vs. savings account: How do they compare?

Key differences in purpose, tax advantages and investment options.

Roth individual retirement accounts (IRAs) and savings accounts are two account options for individuals looking to save and grow their money.

However, these two accounts vary greatly in terms of tax advantages, available asset types and, most importantly, purpose. Find out more about how these accounts differ to see which is right for you.

Roth IRA vs. savings account: A quick comparison

Roth IRA vs. savings account: Which one’s better?

Roth IRAs and savings accounts have different purposes, so one is not necessarily better than the other. A Roth IRA is a tax-advantaged retirement account meant for long-term investing, while a savings account is a deposit account for cash.

When to consider a Roth IRA

A Roth IRA may be a good option if you:

  • Want to invest your money instead of saving it. Depending on the IRA custodian, invest in anything from stocks and bonds to exchange-traded funds (ETFs), mutual funds and alternative assets like cryptocurrency.
  • Want to save for retirement and enjoy tax benefits. Because you contribute after-tax money, qualified distributions are tax-free.
  • Don’t want RMDs. Unlike traditional IRAs and 401(k)s, Roth IRAs have no RMDs. Mandatory withdrawals are only required after the death of the account owner.
  • Want access to your contributions. Withdraw your Roth IRA contributions at any time tax- and penalty-free.

When to consider a savings account

Consider a savings account if you:

  • Want immediate access to your money. Access your money at any time by online transfer, ATM withdrawal or visiting your local bank branch.
  • Want to earn interest on your cash. While traditional savings accounts earn next to nill when it comes to interest — 0.47% APY as of February 8, 2024 — many high-yield savings accounts currently pay APYs over 5%.(1)
  • Have short- or long-term term savings goals. Savings accounts are ideal for putting aside money for unexpected expenses and emergencies.

The similarities between a Roth IRA and a savings account

Roth IRAs and savings accounts can both be used to save money for long-term goals, and both can earn interest. However, the structure of these accounts will change the way you use them to reach your goals. For example, Roth IRAs offer tax advantages for saving for retirement. Savings accounts do not.

Roth IRA vs. savings account: Where to open these accounts

Open a Roth IRA through banks, financial institutions or brokers like Fidelity and Charles Schwab or with stock trading apps like SoFi Invest and Robinhood.

Open a savings account at banks, credit unions and online financial services companies.

Alternatives to Roth IRAs and savings accounts

While Roth IRAs and savings accounts are great options to help you save for financial goals, other accounts may be more appropriate depending on those goals:

  • Traditional IRA. Consider this type of IRA if you want to save for retirement and benefit from a tax deduction in the year in which you make your contributions. Since you pay taxes on your money when you begin taking withdrawals, a traditional IRA may be a good option if you think you’ll be in a lower tax bracket at retirement. The best IRA accounts offer flexible investment options, low fees and research tools and educational resources to help you invest.
  • Health savings account (HSA). If you’re enrolled in a high-deductible health plan, set aside money on a pre-tax basis to use for qualified medical expenses. Your contributions reduce your taxable income, and at age 65, you can take penalty-free distributions from the HSA for any reason. However, you still need to use your money for medical expenses to avoid taxes.

Compare brokerages that offer IRA accounts

Narrow down top brokers by annual fee, stock trade fee and more to find the best for your budget and financial goals.

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Roth IRASavings account
Where to openBrokers, banks or other financial institutionsBanks, credit unions and other financial institutions
Investment optionsAll assets are permitted inside an IRA except collectibles and life insurance

The IRA custodian determines available investment options

Cash deposits
Income limitsIndividuals filing as single and head of household.
Contribute up to $7,000 if your 2024 modified adjusted gross income (MAGI) is under $146,000; individuals with a MAGI above $146,000 can contribute a reduced amount until contributions are phased out upon reaching a MAGI of $161,000

Married couples filing jointly.
Contribute up to $7,000 each if your MAGI is under $230,000 per year; married couples with a MAGI above $230,000 can contribute a reduced amount until contributions are phased out upon reaching a MAGI of $240,000

None
Contribution limits$7,000 for those under age 50

$8,000 for those age 50 and over

None
Eligibility requirementsNo age requirements, but you need earned income to contribute

Income limits apply

None
Who can contributeAnyone with earned income so long as their income doesn’t exceed a certain thresholdN/A
Tax advantagesEarnings grow tax-free

Qualified withdrawals are tax-free

None
Withdrawal restrictionsWithdrawals of earnings before age 59.5 from a Roth IRA you’ve held less than five years will incur taxes and penalties (exceptions apply)

Withdrawals of earnings after age 59.5 from a Roth IRA you’ve had more than five years will be subject to taxes but not penalties

The Federal Reserve suspended the six-transaction rule in Regulation D in 2020, though individual banks may impose withdrawal limits
Required minimum distributions (RMDs)No RMDsNone
FDIC insuranceRoth IRAs that contain bank deposits such as certificates of deposit (CDs), savings accounts or money market accounts are insured up to $250,000Deposits are automatically insured to at least $250,000 per depositor, per insured bank
SIPC insuranceSIPC insures cash and securities up to $500,000 at SIPC-member brokersNone
Pros
  • Tax-free growth and qualified distributions are tax-free
  • No RMDs
  • Withdraw contributions at any time without tax or penalty
  • Flexible investment options
  • Easy access to your money
  • Your money is insured
  • High-yield savings accounts pay competitive interest
Cons
  • Must hold account for five years to withdraw funds penalty-free
  • No tax deduction for contributions
  • Minimum contributions is relatively low
  • Interest rates can vary
  • Interest is taxable
  • May charge fees
  • May have minimum balance requirements
Learn more about Roth IRAsLearn more about savings accounts
Name Product Minimum deposit Annual fee Retirement account types
SoFi IRA
Finder Score: 4.2 / 5: ★★★★★
SoFi IRA
$0
$0 per month
Roth, Traditional, SEP, Rollover
Trade stocks, options, ETFs, mutual funds and alternative asset funds, with no-cost financial advice and a no-cost robo-advisor.
JP Morgan Personal Advisors
Finder Score: 3.3 / 5: ★★★★★
JP Morgan Personal Advisors
$25,000
0.6% on balances of $25,000 to $249,999

0.5% on balances of $250,000 to $1,000,000

0.4% on balances of $1,000,000+
Roth, Traditional
Ongoing access to an advisory team with personalized, expert-built portfolios. Provider terms & conditions apply
Robinhood Retirement
Finder Score: 4.4 / 5: ★★★★★
Robinhood Retirement
$0
0%
Roth, Traditional, Rollover
Boost your retirement savings with 1% in matching funds on every dollar contributed, transferred or rolled over to a Robinhood IRA.
Vanguard IRA
Finder Score: 4 / 5: ★★★★★
Vanguard IRA
$0
0.3%
Roth, Traditional, SEP, Spousal, Rollover
Save for retirement with Vanguard's commission-free stocks, ETFs and 160+ no-transaction-fee mutual funds.
Interactive Brokers IRA
Finder Score: 4.5 / 5: ★★★★★
Interactive Brokers IRA
$0
N/A
Roth, Traditional, SEP, Rollover
Choose from 6 IRA account options, with access to stocks, ETFs , futures, currencies and more.
Acorns Later
Finder Score: 4.2 / 5: ★★★★★
Acorns Later
$0
$3 per month
Roth, Traditional, SEP
Automatic ETF investing with as little as $5. Annual fee of $3, $5 or $9 per month depending on subscription.
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Finder is not an adviser or brokerage service. Information on this page is for educational purposes only and not a recommendation to invest with any one company, trade specific stocks or fund specific investments. All editorial opinions are our own.

Frequently asked questions

Is it better to put money in a savings account or a Roth IRA?

Your goals will determine whether it’s better to put money in a savings account or a Roth IRA. If you want to save specifically for retirement, a Roth IRA may be the better option because it offers tax benefits. If you’re saving for short- or long-term goals — other than retirement — where you need easy access to your funds, a savings account may be the better option.

What are the disadvantages of a Roth IRA account?

Some disadvantages of a Roth IRA include no tax deductions on contributions and penalties for early withdrawals.

How much will a Roth IRA grow in 20 years?

The amount a Roth IRA grows over 20 years depends on your investment choices and market conditions.

What are three advantages of putting money in a Roth IRA account?

Three advantages of putting money in a Roth IRA include tax-free withdrawals in retirement, tax- and penalty-free withdrawals on contributions at any time and the ability to invest in a range of asset types.

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