FIXED ANNUITIES VS. CDs
FIXED ANNUITIES VS. CDs
Why do people choose an annuity over a certificate of deposit?
by MidAmerica Financial Resources
Do you have a CD down at your local bank? Do you consider yourself a conservative investor? If so, you may want to take a look at a tax-deferred fixed annuity – a popular investment choice for many retirees and pre-retirees.
A fixed rate of return … and so much more. A fixed annuity is another traditional way to earn relatively high accumulation rates. Like a CD, an annuity offers you a guarantee of principal and interest. At the moment, CDs commonly earn 3.5-5% interest.1 Fixed annuities offer you comparable or better rates of return plus other advantages.
The big advantage is tax deferral. You get tax-deferred growth with a fixed annuity: you earn interest on your money, interest on your interest, and interest on the money that you would have paid to the tax man. You only pay taxes on the money in a fixed annuity when you withdraw that money. Contrast that with a CD, where the interest you earn is taxed every year.
The assets in a tax-deferred fixed annuity accumulate at a set rate of growth over a specified or adjustable period. Some fixed annuities even have a first-year “bonus rate”. Accumulations can be paid to you periodically, or you can let them compound. The investment risk is assumed by the insurance company, which by law has to have the dollar-for-dollar liquidity to fulfill scheduled payouts.
A check in the mail for the rest of your life. Really? Yes, that is often the case. Fixed annuities commonly offer you the option of guaranteed lifelong income through annuitization, in the form of monthly or annual payments. Many fixed annuities also offer a guaranteed death benefit. Fixed annuity proceeds are even exempt from probate.
Now you see why fixed annuities can be very attractive. When you compare the advantages of a tax-deferred fixed annuity to the advantages of a CD, the fixed annuity may very well appear to be a viable option. (You can even transfer a CD to an annuity.) Please call me if you would like to know more about a tax-deferred fixed annuity – a relatively conservative investment that could be a great choice for you financially.
CDs are FDIC insured and offer a fixed rate of return. Fixed annuity guarantees are based on the claims-paying ability of the issuing insurance company. Annuitization may require the forfeiture of principal for the insurance company’s pledge of a lifetime or other period certain income stream.
These views are those of the author and should not be construed as investment advice. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Financial Professional for further information.
Citations. 1 www.bankrate.com/#
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