Bank CD or Annuity - Which is right for You?

Many people have become very comfortable with their Certificates of Deposit and use them because they are not aware of other savings products that may be better suited to their goals.

A tax-deferred fixed annuity can be an attractive alternative to a bank CD for the right person. Would an annuity be right for you?

  Tax-Deferred Annuity Certificate of Deposit
Taxation Interest income from a tax-deferred annuity usually not reportable nor taxable until it is withdrawn. Interest income from a traditional CD is both reportable and taxable as it is earned
Social
Security
Because interest income from a tax-deferred annuity is not reportable until withdrawn, it is not included in the calculations for Social Security crossover taxation. CD interest income is used annually to determine taxation on Social Security Benefits. Even tax-free earnings from municipal bonds are reportable and contribute to the taxation of Social Security benefits.
Interest Annuities currently provide guaranteed annual interest rates. CD rates will vary from bank to bank.
Premium
Bonus
Premium bonuses are available on some annuities. Certificate of Deposits do not offer a premium bonus.
Guaranteed
Life Income
Annuities offer the insured the option of a guaranteed income stream for life. A bank CD cannot offer a guaranteed income stream for life.
Withdrawal
Charges
Generally, annuities are long-term instruments and have no maturity date. Instead, the insurer imposes a schedule of declining early withdrawal charges which are generally eliminated after a designated period of time. Withdrawal penalties are renewed every time a CD is renewed. Typically, withdrawal without penalty is available only for a short period of time at the end of each renewal period.
Emergency
Access
Many annuity contracts provide penalty free withdrawal up to 10% per year. Additionally, early withdrawal may be available penalty free for emergencies such as nursing home or loss of employment. Funds cannot be accessed during the term of the CD without withdrawal penalties. CD contracts typically do not contain any provisions for penalty free withdrawal mid term.
Loss
Protection
Tax-deferred annuities are backed with the financial strength of the insurer, as well as a state guarantee association. Certificates of deposit are insured by the FDIC up to $250,000 per person, per institution.