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Fixed Annuities: An Alternative to Bank Certificates of Deposit
By Allan Carney
Fixed annuities are CD-like investments that are issued by insurance companies, and like bank certificates of deposit, they pay guaranteed rates of interest. The guaranteed interest on these products makes fixed annuities attractive to investors that may be concerned about the possibility of loss when investing in the stock market; an advantage to those with a conservative investment outlook. Another attractive feature with fixed annuities is that any taxes on the interest are deferred until the annuitant cashes in on the annuity.
Currently (February, 2014), the interest rate paid on fixed annuities is substantially higher than that paid on certificates of deposit. Many of the major banks are paying interest rates of 0.5% to 1% on CDs, while rates for fixed annuities currently range from 2% to 4%, depending on the amount invested and accumulation phase of the annuity.
The principal and interest on fixed annuities are guaranteed by the issuing insurance company, but unlike CDs, they are not guaranteed by the U.S. government. Therefore, any investor contemplating the purchase of a fixed annuity should consult with his or her financial professional about the issuing insurance company’s ratings and financial strength. There are many other features of fixed annuities that an investor should understand before making a commitment.
Your agent should be experienced in this area and be aware of the differences and features that make a fixed annuity offered by one insurance company different from that offered by another company. He or she should also ask questions about the needs and concerns of your family and recommend a contract that is best suited to those needs.
If you would like to talk about fixed annuities or any other investment concern, contact us at 847-572-0835 or firstname.lastname@example.org.