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.
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.)