What is the diffrence between a CD and an annuity?
Annuities and CDs (bank certificates of deposit) are similar in that they are safe,
secure investments with guaranteed rate of returns based on interest rates. Both are issued
by large financial institutions. CDs are issued by banks, annuities are offered by insurance
companies, but they both possess inherent differences as well.
The big differences are that while annuities offer everything CDs offer, they carry several advantages including higher returns, tax-deferral and liquidity. CDs do have FDIC protection to guard against bank or banking industry failure, but annuities also have safety measures put in place by the state to ensure Insurance companies have reserve pools in place.
Insurance companies may also be vetted for financial strength by obtaining their rating from objective rating firms -- Standard & Poor's, Moody's, A.M. Best or Duff & Phelps .
The more solid the rating usually equates to a more solid financial backbone of the insurance company.
What does taxed deferred mean?
This applies to an investment whose accumulated earnings are free from taxation until the investor takes possession of them. Usually, you cannot take possession of these investments without penalty until you are 59-1/2 years old. Tax-deferred investments are allowed by the IRS for you to save for retirement.
What is an income annuity?
This is an annuity that can be set up to pay you a fixed amount monthly or annually
for life!
What is a premium guarantee?
This is a porduct that allows you to get 100% of premiums back at anytime with no surrender charge!
What is a fixed annuity?
A fixed annuity is an insurance contract where the insurance company pays you a guaranteed fixed rate for a specified period of time, after that time is up you are free to take your money and the interest you earned.
There are two types of fixed annuities: CD type fixed annuities and traditional fixed annuities.
CD Type Fixed annuities are similar to a CD, paying a stated percentage rate for every year you are in the annuity, and traditional fixed annuities pay an interest rate that can fluctuate depending on where interest rates are, but can never go below the guaranteed amount. When in a fixed annuity, both CD type and standard.
With fixed annuities, your money generally isn’t completely tied up; most fixed annuities allow you to withdraw up to 10% or 20% each year. Also, many fixed annuities allow you to pull the entire amount out if you; spend time in a hospital, become terminally ill, or pass away.
What is an equity indexed annuity?
An equity-indexed annuity is an annuity that offers a guaranteed base rate of interest usually lower than a
typical fixed annuity but has upside potential linked to the stock market. The big difference between a fixed
annuity and an equity-indexed annuity is that an equity-indexed allows you to link your annuity to a stock market
index such as S&P 500.
Even though your annuity is tied to a stock market index you will never earn less than the
base rate you have been guaranteed even if the market goes down. However, when your index goes up there will be an
upside limit which limits the amount of interest you can earn to usually 8-10% per year.