A CD, OR A CD-TYPE ANNUITY?

How they compare – and why annuities are so attractive.

 

If you’re a conservative investor, you may be wondering what fixed-rate alternatives you have to certificates of deposit. Have you ever looked at fixed annuities? Specifically, fixed “CD type” annuities? Right now, they look a lot better than CDs do.

Yes, CDs are FDIC-insured. But fixed annuities come with a guarantee as well, and often a better rate of return - plus the opportunity for tax-deferred growth and compounding.

The drawbacks of CDs. The interest rate on CDs today is often disappointingly low – often well below 5%. Besides the pitiful return, you have another disadvantage: the interest your CD earns is fully taxable.¹ (And FDIC or no FDIC, do you really want your money in a bank right now with the hassles bank customers are going through?)

But you have an alternative.

The appeal of the “CD type” fixed annuity. Just like a CD, a “CD type” fixed annuity is designed to grow your money over a specified term until maturity – usually five or ten years. Right now, some of these annuities are earning well over 5% interest.² (The interest rate is locked in for the whole term of the annuity, unlike some fixed annuities where the interest rate is only guaranteed for one year.)

 

Unlike a CD, a “CD type” fixed annuity gives you tax-deferred growth. The earnings aren’t taxed until withdrawal.³

 

With five- and ten-year terms, these annuities are particularly appealing to people in their fifties who are seeking a conservative retirement savings vehicle.

 

Learn more. If you think of yourself as a risk-averse investor, you might want to examine the range of options in fixed “CD style” annuities. Before you make a decision, make sure you talk to a qualified insurance agent or financial advisor who can explain the terms and conditions of these annuity contracts.

 

 

Citations.

¹ streetauthority.com/terms/c/cd.asp      [8/08]

² annuityadvantage.com/annuitydata.htm            [8/22/08]

³ investopedia.com/terms/d/deferredannuity.asp             [8/08]

 

 

 

 

 

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