Fixed annuity returns are often compared to the returns you can earn on certificates of deposit. Both fixed annuities and CDs are very safe investments and are normally purchased by income-oriented individuals. Both can provide income over a specified period of time. Banks and credit unions commonly offer CDs that range in length from three months to five years. Annuities are sold by life insurance companies and can be purchased for a certain period (such as 5 or 10 years) or for life (Payments continue as long as you are alive.).
CD type annuities
A CD type annuity is a fixed annuity that guarantees the interest rate for the full duration of the surrender period. Like a bank CD, you know the exact return you will earn if you do not withdraw any funds during the surrender period. Fixed annuities offer several advantages over bank CDs.
- Fixed annuities typically pay a higher rate than bank CDs. For example, as of April 15, 2014, the highest rate on 5-year bank CDs offered by national banks (e.g., Barclays and GE Capital Retail Bank) was 2.25%. Contrast that with the 5 year fixed annuity rate of 3.10% that Liberty Bankers Life offers on its Elite-5 annuity.
- Many fixed annuities have the added benefit of allowing you to withdraw the previous 12 months’ interest or 10 percent of your premium without incurring any surrender charge or penalty. Bank CDs typically do not allow you to withdraw any money without incurring a penalty.
Annuity rate tables make it easy to see how much you need to invest at today’s current annuity rates to generate the kind of income you need. For example, if you can get CD type annuity rates of 3.25%, the table can tell you how much you need to invest today (present value) to generate $2,000 per month for the next five years.
We are all looking for the highest return on our money. You can do better than the minuscule returns offered on bank CDs. An annuity gives you the same level of safety, a higher interest rate, and a bigger monthly check.