CDs vs Annuities

Low CD rates creating frustration and costing you money?

These are just a few of the factors to consider when making your selection between a CD and a Deferred Annuity. For more information on the Power of Deferred Growth, Click Here.

1. Why are some banks offering deferred annuities in lieu of CDs?

2. Unlike CDs, Annuities are Taxed Deferred. At a 35% tax bracket, a 2% CD rate is an after tax return of  1.3%.  There for, if your annuity return is just 3% deferred, your equivalent CD rate would need to be 5.71%.

3. Consider this a 10% Bonus Annuity with 4% current rate of return is 14.4% first year return. In order for your bank to match this rate your bank would need to pay you over 17%. Today the average CD rate is less than 2.5%.

4. A Deferred Annuity also provides you with access to funds should the need arise. Most companies will give you the flexibility to withdraw a portion of your deferred annuity's account value, usually 10% each year, without a company-imposed surrender charge. Withdrawals from deferred annuities can be made in response to a one time cash need or set up systematically to respond to a continuous need. In fact, most deferred annuities offer the opportunity to systematically withdraw funds on a monthly, quarterly, semi-annual or annual basis.

5. Distribution Options at Maturity: When a CD reaches its maturity, you can take the CD's lump sum value in cash, renew the CD for the same or different maturity period or examine other investment alternatives (such as a deferred annuity). In a deferred annuity you may elect to withdraw your money in a lump sum or you may want to select a lifetime income option, which will provide you with a consistent flow of income that you cannot outlive. Or, you can simply elect to let your funds accumulate until a need arises.

6. There is a special class of fixed annuities called CD-Type annuities. These annuities are different than the typical fixed annuity because the period of the guaranteed interest rate is equal to the length of time that the surrender charge period exists. If the surrender charge falls off at the same time that the interest rate guarantee falls off, the investor can switch to another investment without paying surrender charges. (There are still tax implications.)

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