Expert: Gina Boykin - 6/1/2009

Question
I want to open a Roth IRA to save for retirement.  I want to know: 1) Where should I open the Roth IRA account?  I don't have $ to go to a financial planner and I only have a small amount of money to get it started (about $100).  I called Wells Fargo bank and they only had an interest rate of 1.1%.    Is that all I can expect?

Answer
You have several options when it comes to opening a Roth IRA.  You can open one using a financial planner, with a bank, or with a brokerage firm.  Going through a financial planner will probably cost you the most, so I'd recommend checking out the large discount brokerage firms like Fidelity, Charles Schwabb, and Vanguard.  Not only do they have much lower fees, but they have a ton of options. Remember, a Roth IRA is only a type of account. You still have to select what you want to invest in.  You can do mutual funds, including index funds and exchange traded funds (ETF's). You can also do individual stocks or bonds.  These firms know that everyone doesn't have $2,000 or $5,000 to open an account. That's why they all offer account builder programs. These programs allow you to put aside a small amount each month or quarter, as long as you sign up for automatic drafts from your checking or savings account.  The point of these programs is to eventually get your account balance to their "required minimum balance".

The rate you will receive depends on your investment. The rate of 1.1 that you stated is most likely just a certificate of deposit (yes, you can even do CD's in a Roth IRA).  These low rates are going to be typical for that type of investment. If you want something higher and are willing to take more risk, index funds are a great way to be in stocks and diversify at the same time.  They also have lower fees than any other type of mutual fund.  You may not want to do individual stocks until your account has grown so that you won't get hammered with fees - there is a commission fee with each purchase and sale.

Before opening an account anywhere, go the websites of the firms I mentioned above. They have extensive information about the Roth IRA, and the options that are available.  You can also call them with questions.  Since they are "discount" brokers, they don't provide advise like telling you which fund or stock to buy, but they definitely give you general information about opening and managing accounts. Then you can go with the one where you feel most comfortable.