Why a Fixed Annuity is Better Than a CD

Fixed annuities and certificates of deposit (CDs) are popular options for conservative investors seeking guaranteed growth and security. However, fixed annuities often offer distinct advantages over CDs, especially when it comes to long-term retirement planning. Here’s why:

• Fixed annuities typically offer higher interest rates than CDs, especially for longer terms. This higher rate translates to more substantial growth potential, helping your money grow faster while still remaining secure.

• With a fixed annuity, interest grows on a tax-deferred basis. You won’t pay taxes on earnings until you start withdrawing funds, allowing for faster accumulation due to compounding. CDs, however, are taxed annually on interest, which can reduce your overall growth.

• Unlike CDs, fixed annuities can provide a guaranteed income stream for life or a set number of years, making them particularly valuable for retirement. This feature helps protect against the risk of outliving your savings, which CDs cannot offer.

• Fixed annuities often have withdrawal provisions after the initial surrender period, allowing partial access without penalties. CDs are more restrictive, usually charging a penalty if you withdraw funds before the term ends.

• Fixed annuities offer flexibility with contract terms, ranging from a few years to several decades, and often let you choose income start dates. CDs, however, are typically short-term, often 3 months to 5 years, and offer limited renewal options that can lock in lower rates if interest rates drop.

• Fixed annuities can have a death benefit feature, allowing the remaining balance to pass directly to a designated beneficiary. This feature helps bypass probate, while CDs are subject to probate unless held in a trust or transfer-on-death account.

• Longer-Term Financial Goals: If you’re looking to build wealth over a longer period, a fixed annuity’s higher rates and tax deferral provide a greater advantage.
• Retirement Income Needs: If generating lifetime income is important to you, a fixed annuity offers options that a CD does not.
• Estate Planning: Fixed annuities are often better suited for those wanting a smoother inheritance transfer.

A fixed annuity combines growth, income security, and flexibility, making it a powerful alternative to CDs for long-term retirement planning.