Roth IRA Interest Rates: How to Make Your Account Grow

You want to invest for retirement, and you know a Roth IRA is a great way to do that. Your next step is to think about which investments might help your account grows over time.

What's the average Roth IRA interest rate?

Roth IRAs aren't investments and don't pay interest or earn interest, but the investments held within Roth IRAs may earn a return over time. Historically, the annual stock market return is 10%, or about 6 or 7% after inflation. Depending on your investment choices, you may be able to earn that 6% to 7%, or potentially more. You may also earn less, or lose money.

If your Roth IRA is full of low-risk bonds, you may earn a lower, but potentially more consistent, return year to year. In contrast, if your Roth IRA is invested primarily in growth stocks, the risk is higher, but you may earn a higher return over a longer period of time.

Of course, the return you earn is highly dependent on the stock market, and the market is never guaranteed. But investing with a well-diversified portfolio can help you safeguard your potential earnings from risk.

How to earn a return in a Roth IRA

While earning a return in a Roth IRA depends on the investments within the account and their performance year to year, another factor to consider is contributions.

» Calculate how contributions might grow with our Roth IRA calculator

The Roth IRA annual contribution limit is $7,000 in 2024 ($8,000 if age 50 or older). If you open a Roth IRA and fund it with $7,000 each year for 10 years, and your investments earn 6% annually, you may end up with more than $92,000 by the end of the decade.

If, however, you didn't invest your money, or didn't put it in the bank, you'd have just $70,000, which is simply each year’s contribution multiplied by 10, with no investment return. In fact, the purchasing power of that balance will be dimmed by inflation.

You’ll make the most of the Roth IRA’s tax advantages when you retire. You pay taxes on your contributions before they go into your account. Your contributions and earnings grow tax-free, and qualified withdrawals after age 59½ are tax-free, as well.

How to invest with a Roth IRA

The idea that a Roth IRA is just a vessel for your investments doesn’t mean that all Roth IRAs are created equal. Where you open your Roth IRA has a big effect on the investments you’re able to access. In addition, the fees you pay for maintaining the account and purchasing those investments may vary widely.

If you want access to the widest range of investments, consider opening your IRA at a broker. There, you can manage your account yourself, picking and choosing investments based on your goals and risk tolerance. Most brokers will offer access to individual stocks, bonds — some of which do pay a fixed interest rate — and mutual funds, including index funds and exchange-traded funds.

Banks also offer IRAs, but the investment options within bank IRAs are typically limited to savings accounts or certificates of deposit.

If you’d rather be hands-off and don’t mind a more limited investment selection, you can open a Roth IRA at a robo-advisor. These computer-aided investment services will manage your account for you, building a portfolio that aligns with your goals and adjusting it as needed. Most robo-advisors use index funds or ETFs.

» See our top picks for best Roth IRA accounts

Watch out for Roth IRA fees

No matter where you open your Roth IRA, you’ll likely want to pay attention to costs. At a broker, you might pay transaction fees to buy and sell investments, and there are annual fees — called expense ratios — for the mutual funds you choose.

For robo-advisor management, you may have to pay an annual fee, plus the cost of the expense ratios of the funds the advisor chooses for your portfolio.

All of these costs can reduce your overall investment return, because every dollar you pay to fees is a dollar that doesn’t go into your investment.