Bank CD rates are averaging 1% to 1.8% on a 5 year fixed basis nationally. Rate offerings have not been this low in many decades. With the current inflation rate nearing 3%, a fixed CD at less than 2% will not even keep pace. Given this dynamic, it makes sense to look for alternatives.
Insurance companies offer interest rates for a fixed period of years similar to CD rates. Like a CD, once the fixed term expires, you are able to either roll over the account to another fixed period or take your money and go elsewhere with it. Historically, insurance companies have offered rates that are competitive with CD rates. Currently they are offering rates that are often 50% higher than the equivalent CD rate.
Insurance company offerings are not FDIC insured by they are backed by the Guarantee Association in each state. The amount covered by the Guarantee Association varies from $200,000 to $500,000 depending on the state the application is signed in. (For example: Connecticut is $500,000)
There are currently 2 insurance companies offering a 5 year fixed rate at 3.6%. Another is offering a rate of 3.15% and they offer it with a 100% return of premium feature that can be used at any time. Given the low nature of the rate environment, a return of premium feature may be useful. Both companies are A rated and owned by larger A rated parent companies.
The insurance company offerings provide a higher return on a fixed basis and should be considered as an alternative to CD’s due to their more competitive yields.