If you are in need of a safe and insured investment providing reliable interest for a desired number of years, you will want to compare a CD to a fixed annuity account.
Both offer pros and cons depending on what features are most important to you now and going forward. The chart below compares the advantages and disadvantages of both accounts side by side.
View Current Fixed Annuity Interest Rates
Typically annuity accounts offer higher interest rates than CDs, but that is not the only factor investors want to evaluate when considering these two investments. In other words, one size does not fit all.
|Investment Feature||Fixed Annuity Account||Certificate of Deposit|
|Principal Safe and Insured?||Yes||Yes|
|Insured By?||State Insurance Guaranty Association||Federal Deposit Insurance Corporation|
|Insured Up To?||$300,000 per Household||$250,000 per Depositor|
|Offers Predictable Interest
Rates, Yields, and Returns?
|Liquid to Owner(s) at End of Chosen Term?||Yes||Yes|
|Liquid to Your Beneficiaries at Passing?||Yes||Yes|
|Accepts Qualified Rollovers – i.e. IRA, 403(b), 401(k)?||Yes||Yes|
|Allows Qualified Funds to be Stretched at Passing?||Yes||No|
|Withdrawal Percentage of Principal without Penalties?||Yes||No|
|Offers Tax Deferred Accumulation?||Yes||No|
|Can Defer Income Taxes?||Yes||No|
|Offers Optional Lifetime Stream of Income?||Yes||No|
|Allows Additional Deposits?||Yes||No|
|Avoids Time and Expense of Probate?||Yes||No|
|Penalty Free Withdrawals Available for Health Issues?||Yes||No|
|Deposits Reduced by Agent Commissions?||No||No|
|Offers Higher Guaranteed Interest Rates?||Yes||No|
We are currently in a low interest rate environment that impacts yields for both accounts. However, interest rates are likely to increase over the next few years due to inflation and Federal Reserve policy.
That being said, fixed annuities are currently offering better multi-year rates than bank deposits. This has been the case in both low and high interest rate environments spanning over the last several years.
Annuities offer more features and flexibility than CD’s, but that does not imply that they are the most appropriate investment account for your fixed income dollars. Typically, younger consumers will purchase CD’s while those saving toward or those who are near retirement will opt for annuity accounts.
The reason annuities are better suited for those who are age 59 or for those who do not intend to withdrawal income, principal, or interest until retirement is that they can be subject to IRS penalties. Whether an annuity is funded with pre or post tax dollars, the owner can be penalized by the IRS if taking withdrawals before age 59 1/2. There would be no IRS penalties after age 59 1/2 and there are no such penalties accessed to the beneficiary of the account when the owner passes – regardless of age.
If you have not yet reached, but wish to save toward retirement – then an annuity account can be a wise choice. Your interest will compound through tax deferred growth each year and accumulate more quickly than a taxable bank certificate of deposit.
Once retirement has been reached, the entire balance can be converted into a lifetime stream of income for you and your family if desired. Or you can withdrawal your interest each month and leave the principal intact for as long as you wish. Or you can continue to allow the funds to compound on a tax-deferred basis.
Your accumulated principal and interest always belongs to you and not the insurance company. At passing, your beneficiaries would receive the entire balance of the account as a lump sum. Your beneficiaries can also choose to receive all funds over a set period of years in order to reduce any income taxes that might be due.
In summary, annuities offer distinct advantages that bank certificates simply do not. By speaking with us and informing us of your priorities, you should quickly be able to determine which investment is most appropriate for you.
Contact us today to learn more about your best fixed annuity options.