A CD or a CD-Type Annuity? How they Compare and Why Annuities are so Attractive

If you’re a conservative investor, you may be wondering what fixed-rate alternatives you have to certificates of deposit. Have you ever looked at fixed annuities? Specifically, fixed “CD type” annuities? Right now, they look a lot better than CDs do.

Yes, CDs are FDIC-insured. But fixed annuities come with a guarantee as well, and often a better rate of return – plus the opportunity for tax-deferred growth and compounding.

The drawbacks of CDs. The interest rate on CDs today is often disappointingly low – often well below 5%. Besides the pitiful return, you have another disadvantage: the interest your CD earns is fully taxable.1 (And FDIC or no FDIC, do you really want your money in a bank right now with the hassles bank customers are going through?)

But you have an alternative.

The appeal of the “CD type” fixed annuity. Just like a CD, a “CD type” fixed annuity is designed to grow your money over a specified term until maturity – usually five or ten years. Right now, some of these annuities are earning well over 5% interest.2 (The interest rate is locked in for the whole term of the annuity, unlike some fixed annuities where the interest rate is only guaranteed for one year.)

Unlike a CD, a “CD type” fixed annuity gives you tax-deferred growth. The earnings aren’t taxed until withdrawal.3

With five- and ten-year terms, these annuities are particularly appealing to people in their fifties who are seeking a conservative retirement savings vehicle.

Learn more. If you think of yourself as a risk-averse investor, you might want to examine the range of options in fixed “CD style” annuities. Before you make a decision, make sure you talk to a qualified insurance agent or financial advisor who can explain the terms and conditions of these annuity contracts.

If you would like to set up a no-cost consultation with the Investment & Retirement Center located at First Financial, contact them at 732.312.1500 or visit our website for more information.

Representatives are registered, securities are sold, and investment advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor, 2000 Heritage Way, Waverly, Iowa 50677, toll-free 800-369-2862. Nondeposit investment and insurance products are not federally insured, involve investment risk, may lose value and are not obligations of or guaranteed by the financial institution. CBSI is under contract with the financial institution, through the financial services program, to make securities available to members.


1 streetauthority.com/terms/c/cd.asp [8/08]

2 annuityadvantage.com/annuitydata.htm [8/22/08]

3 investopedia.com/terms/d/deferredannuity.asp [8/08]


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s