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Eddie Patel, President
Action Investment Services, Inc.
Annuity or CD
Which is better for me?
Written by Eddie Patel
As with any concept in income planning, there is no absolute answer. However, I believe the annuity is superior to the CD, except where a very short term investment period is required, due to the potential for greater return of the annuity with a similar risk profile to the CD.
I prefer annuities and use them nearly 100% of the time with my clients for a myriad of reasons, including those outlined in the chart below, which summarizes the key differences between them.
Annuity |
CD |
|
| Safety | YES | YES |
| Fixed Rate of Return | YES but more options available |
YES |
| Steady Predictable Growth | YES | YES |
| Tax Deferral | YES | NO |
| Liquidity and Access | YES | NO |
| Flexible Premium | YES | NO |
| Avoid Probate & Estate Taxes | YES | NO |
| Up Front Bonus | YES | NO |
| Potential for Yield Growth | YES | NO |
| Guaranteed Lifetime Income | YES | NO |
| Free Nursing Home Benefit | YES | NO |
| Social Security Tax Advantage | YES | NO |
| Penalty Free RMD | YES | NO |
| Dollar Cost Averaging | YES | NO |
| Loan Privileges | YES | NO |
| Inflation Protection | YES | NO |
As you can see both products are purchased primarily for SAFETY, but the ancillary benefits available to annuity owners far exceed those of CD owners. In today’s ridiculously low interest rate environment it is extremely important for CD owners to learn about annuities and to execute the purchase of a suitable contract for their needs.
It should be noted that prominent banker and current Federal Reserve Chairman, Ben Bernanke has a majority of his assets protected and invested in safe annuities (read more). If wealthy bankers like Ben Bernanke are using safe annuities, why would you be using CDs to protect and grow your assets?
Current National CD Average Interest Rate = 2.65%, (4/07/08, source Bankrate.com) Current Rate of Inflation = 4.3% (Inflation for 2007, source CNN Money.com)
Current Net Gain from investing in a 1 year CD = -1.65%
Be sure to ask us why an annuity might be right for you.
