Bank CD Compared To Fixed Annuity
How is a bank CD different from a fixed annuity? In this post we will talk about Bank CD Compared To Fixed Annuity. They are more similar than you may think. Here is a review of similarities and differences.
- Both CD’s and Fixed annuities offer a fixed interest rate for a set number of years. Terms such as 2, 3,5,7 and 10 years are common for both. CD will provide shorter terms than an annuity as most fixed annuities will not offer a term less than 1 year.
- Interest rates have a guarantee for the full term on both products. Once the investor reaches the term, they may take the money out without any other obligation
- Fixed annuities tend to have larger penalties for taking the money out early. While a CD will often just take the interest you gain as a penalty for early termination (taking money before term is over). Fixed Annuities tend to charge penalties above just the interest you gain. Both however are free of any penalties if the investor meets the full term.
- Most annuities will allow investors to take out 10% of the account value penalty free, per year, before the end of the investment’s term.
- Bank CD’s are FDIC insured, while Fixed Annuities are not. Instead annuities are backed by the Guarantee Association of the state of issue.
- In general, a fixed annuity will offer a higher fixed return than a CD. For example, the best current (As of April 3rd, 2014) 5 year fixed annuity rate is 3.2% for 5 years vs. the highest posted CD rate of 2.27% (Bankrate.com)
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