Fixed CD vs Fixed Annuities

By: EconomyWatch Content Team   Date: 24 February 2010

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If you are interested in getting started with investments, it is important to consider all your options and always make comparisons.  One possible investment is in the form of a fixed CD annuity.  While a CD is a Certificate of Deposit, a type of savings that involves an investment of money that earns interest over a set amount of time, a fixed CD annuity is a simple kind of investment.  The amount of time for your investment could be anywhere from three to ten years and with the fixed CD annuity, you would be guaranteed a “fixed” rate of return once the contract period has ended.

This means if you had invested $10,000 in a fixed CD annuity, one paying 4.5% interest, each year you would earn $450, guaranteed.  Therefore, for an investment of this type, the more you can invest and the longer you can keep the money tied up the more you will make.  Of course, as with any investment, it is essential to look at rates offered by a variety of banks in that some will be lower and some higher.  Obviously, you want the highest interest rate possible.

When looking at a fixed CD annuity, you should also learn about the different benefits involved.  One of the things that people love about this particular investment is that it is so simple.  Many investments are complicated, which discourages people to even try them but with a fixed CD annuity, the entire process is easy.  Another benefit is that many issuers provide premium guarantees, meaning that if for some reason you had to cancel the annuity policy after having it for only a year some of the interest would be forfeited.  However, with this guarantee, you will always get a return on your investment.

You will also find that a fixed CD annuity provides you with access to the funds you invested.  Unlike other CD terms, with the fixed CD annuity, you could use the accrued interest each month or whenever during the established term that you want.  Although the actual invested money could not be touched, the interest could.  Although the goal would be to leave the interest alone, if you were to experience car trouble, had some type of medical expense, or something else that needed to be paid, then the money would be accessible.

In addition, with a fixed CD annuity investment, if for some reason you were to be diagnosed with a terminal illness, need to be cared for in a special facility, or you passed away, charges would likely be waived.  For family members, or whomever you named as the beneficiary of the investment, 100% of the investment could be accessed immediately and without being charged a penalty or being required to forfeit some of the fixed CD annuity investment.

Finally, a fixed CD annuity offers something that other Certificates of Deposit do not – benefits of a tax deferral.  In this case, as long as you leave the money locked into the investment, no taxes would need to be paid.  In fact, the only time you would pay taxes on a fixed CD annuity is once the investment matures or when you withdraw all of the money from the investment.
 


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