Deferred Fixed Annuities vs. CD's

Growth, Income and Peace of Mind.

Are you looking for a guaranteed rate of return? Would you like to defer paying taxes on your investment?

Would you like to receive guaranteed income for life?

If "Yes" is your answer to any of these questions, a fixed annuity may be what you are looking for.

What is a deferred fixed annuity?

A fixed annuity is a conservative retirement vehicle designed to accumulate assets and, at your option, provide an income stream during retirement.

To help give you a better idea of what a fixed annuity is and if it is right for you, let's compare fixed annuities to another popular conservative investment vehicle, Certificates of Deposits or CDs. Keep in mind that both of the vehicles are high-quality products therefore the "better" choice depends on each individual's own situation and financial goals.

Key benefits of fixed annuities and CDs
  Fixed Annuities CDs  
Guaranteed Returns Yes Yes Both fixed annuities and CDs are considered low risk investments because they guarantee a positive rate of return. Conservative investors enjoy the peace of mind this feature helps bring to their savings.
FDIC Insured No Yes

CDs are generally backed by banks and are insured up to $100,000 by the Federal Deposit Insurance Corporation (FDIC) per depositor.

Fixed annuities are guaranteed by the issuing insurance companies, but are not insured by the government. Be sure to ask your financial professional about an insurance company's ratings and financial strength if you plan to purchase a fixed annuity.

Free Withdrawals Generally, yes Generally, no

Many fixed annuities allow for a contract owner to withdraw a certain percentage of their account value, usually around 10% on an annual basis, or accumulated interest, free of any annuity charges (tax penalties may apply). Amounts withdrawn in excess of this percentage are typically subject to surrender charges or adjustments, which cease after a certain amount of time. These charges generally decline year by year and will expire at the end of a certain number of years.

Generally, CDs charge an interest penalty if funds are withdrawn prior to maturity. Therefore an investor will have to wait until the CD matures if he or she would like to avoid early charges.

Choice of Investment Yes Yes

Compared to fixed annuities, CDs typically offer a choice of shorter investment terms, such as 90 or 180 days, but also offer 1 year and multiple year durations.

Fixed annuities typically range between 1 and 10 years. Additionally, some fixed annuities do not limit the investment period, which allows the contract owner the flexibility to keep the assets accumulating until needed.

Provides Income Yes Yes

CDs are designed as a savings vehicle and do not provide an income stream. However, interest from CDs can be used as income upon maturity.

Fixed annuities are designed to provide retirement savings and, at your option, a guaranteed income stream. Most fixed annuities offer a choice of methods to receive income, one of which usually guarantees an income stream for life. Payment of lifetime income is contingent upon the claims-paying ability of the issuing company or companies.

Tax Deferral Yes No

Earned interest in CDs are taxable for the current year on an annual basis.

Earnings in a fixed annuity are tax deferred until they are withdrawn, allowing your investment to take full advantage of the impact of compounding interest. Liquidating earnings are subject to income tax and may be subject to a surrender charge. If taken prior to age 59 1/2, a 10% federal income tax penalty may apply. Annuities do not provide any additional tax advantage when used to fund a qualified plan.