If you are looking for a safe and insured fixed interest investment account, you should compare a bank CD to a guaranteed fixed annuity account.
Both offer pros and cons depending on what features are most important to you. The chart below compares the advantages and disadvantages of both accounts side by side.
Annuity accounts typically offer much higher interest rates than CDs. They also allow owners to defer taxes, but their surrender penalties can be higher overall.
Fixed Annuity Versus Bank CD
|Investment Feature||Annuity||Certificate of Deposit|
|Safe & Insured?||Yes||Yes|
|Insured By?||State Insurance Guaranty Association||Federal Deposit Insurance Corporation|
|Insured Up To?||$300,000|
|Rates Are Fixed And Guaranteed?||Yes||Yes|
|Can Withdrawal Principal During Term?||Yes||No|
|Liquid To The Owner At End Of The Term?||Yes||Yes|
|Full Death Benefit To Beneficiaries At Passing?||Yes||Yes|
|Accepts Qualified Money Like IRAs?||Yes||Yes|
|Account Can Be Stretched At Passing?||Yes||No|
|Allows Additional Deposits?||Sometimes||No|
|Offers Lifetime Income Stream If Desired?||Yes||No|
|Penalty-Free Withdrawals For Health Expenses?||Yes||No|
|Principal Reduced By Agent Commissions?||No||No|
|Early Surrender Penalties?||Yes||Yes|
|Currently Offers The Highest Rates?||Yes||No|
Do Bank CDs Or Annuities Offer The Best Rates?
We are currently in a historically low interest rate environment that impacts yields for all fixed income accounts. However, banks have been hit the hardest – and there’s no end in sight. If you are renewing a CD or invested in a money market account, you know bank rates aren’t great. And one wonders how the banks will hold up if there’s another recession.
Fortunately, fixed annuities are more versatile than banks. They primarily invest in government treasuries, but they also purchase highly-rated corporate debt as well. Smaller annuity companies are even more nimble and can purchase smaller tranches of debt that might not suit larger companies.
This translates to better fixed rates for most annuities. By tapping into multiple debt markets, their portfolios offer better returns. Those returns filter down to consumers. It’s not uncommon to see a five year annuity yield 3-4% while banks are half of that at best.