Comparing Fixed Annuities and Bank CD’s

Written By: John C. Ryan on February 11, 2010 No Comment

Everyone close to retirement wants to make certain their funds get the maximum return and yet aren’t subject to undo risk. Some people select bank CDs for this but those with a bit more investment savvy find that fixed annuities are perfect for this situation. A fixed annuity offers the owner the security of a bank CD but has other benefits the CD can’t produce.

Fixed annuities are capable of thrashing bank tolls in percentages as their competitive rates are larger. It is to be noted that the fixed annuities frequently provide an assured toll analogous to a depository. A contractual minimum is also given if the assurance end up which is not common to a bank CD. This sum is found less, but in a condition of hastily falling benefit toll, it habitually seems striking.

Just like bank CDs the fixed annuities have a duration during which you have to hold on to them and by the end of this, a penalty applies. This duration is termed as surrender period in case of a fixed annuity. Also not cashing the annuity at the surrender period in case you miss it will not make you eligible for a penalty. You can just cash it at a later date. The case of CDs is the reverse. Missing out on the surrender period means the CDs will roll over with a penalty period. Thus you end up paying through your nose in fees to the bank.

Another merit that makes fixed annuities different from a CD would be the non-taxing of expansion on the investment. In case of CDs much of the rise in savings moves on to tariffs even if it is moved to the subsequent CD or has withdrawn finances.

If you purchase a fixed annuity while you are employed and if your income falls within the high tax bracket then you have the advantage of the tax shelter offered by this annuity. Your tax liability is only at retirement time when you remove funds to supplement your income at that stage. By then you would fall in the lower income bracket thus making the tax amount to be paid on growth of the annuities quite minimal.

Just like CDs, fixed annuities have governmental guarantees. Instead of the FDIC, the Federal Depository Insurance Company, every insurance company that operates in your state backs the annuity funds. Each state has an Insurance Guarantee Fund. If one of the companies licensed in the state goes out of business, every company that operates in the state supplies funds or absorbs clients so no one loses money.

A fixed annuity imposes 2 restrictions on the investor which can be considered a compromise to enjoy the tax-deferred status that it promises. One is that you have to wait until you are 59 before you avail any returns from it or else you have to concede to the clause of taking systematically equal installments from it until you are 59 or in the least for 5 years. If you do not comply with these clauses you get impose a 10% penalty on the growth. Thus the nature of the fund signifies that it is solely meant for retirement solutions.

Find an agent or browse through the net for more information on this investment option. A fixed annuity certainly suits those looking for maximum returns through a fixed option.

John C. Ryan discusses financial retirement options including fixed annuities and the other annuity types. Did you like this article? To learn more about how a fixed annuity differs to Bank CD’s or other financial options, come see our website.