Fixed Deferred Annuity or Bank CD
Which is right for you?
Choosing how to invest your money for retirement is always a challenge. You understand the need to diversify your portfolio. You want to reduce your exposure to risk. But still want to get the highest return possible.
The fixed deferred annuity and Certificate of Deposit (CD) are two popular, conservative investment options, which tend to be compared to one another. Look at the differences below.
| Investment Considerations | Fixed Deferred Annuity | CD |
|---|---|---|
| Investment Level of Risk | Low | Low |
| Taxation | Not taxed until money is withdrawn. You benefit from the advantages of compounding interest by:
|
Taxed in the year the interest is earned, even if you don't take money out |
| Guaranteed principal1 | Yes - subject to claims-paying ability of insurance company | Limited guarantee - FDIC up to $100,000 |
| Money is free of market risk and price fluctuation | Yes - fixed rates; interest rates credited have the potential to change over time, but are guaranteed not to be less than the guaranteed minimum interest rate state in the contract | Yes - fixed rate; rate does not have potential to change |
| Current taxes | Yes - not taxed until money is withdrawn | No - interest is taxed each year |
| Guaranteed minimum interest rate | Insurance company sets a minimum rate so they cannot go below a certain rate | Interest rates will vary depending on current market conditions and the length of time to maturity |
| Avoids probate | Yes - the annuity is passed straight to named beneficiary | No - goes through probate |
| Able to take cash withdrawals without penalty | Generally able to withdraw a portion of account value, usually 10% a year, without a surrender charge2 | If you withdraw money prior to the maturity date, you may pay an interest penalty |
| Guaranteed lifetime income with additional tax benefits | Yes | No |
| Capable of stretching to a beneficiary | Yes | No |