Fixed Deferred Annuity vs. Bank CD

Find out which one is best for you.

It can always be a bit challenging trying to decide which is the best way to invest your money for retirement. You understand the importance of diversifying your portfolio and reducing your exposure to risk. But which investment will get you the highest return possible from your nest egg?

The Fixed Deferred Annuity and Certificate of Deposit (CD) are two of the most popular and conservative investment options, which usually tend to be compared to one another because of their similarities. However, there are some major differences between these two investment options that can affect the amount of money you can earn. Take a look at the differences below.

Fixed Deferred Annuity CD
Investment Consideration: Taxation
Not taxed until money is withdrawn. You benefit from the advantages of compounding interest by:

  • Earning interest on principal
  • Earning interest on the interest
  • Earning interest on the money that would have been lost to current income taxes
Taxed in the year the interest is earned, even if you don’t withdraw any money
Investment Consideration: Guaranteed principal1
Your full principal amount is guaranteed, and subject to claims-paying ability of insurance company Limited guarantee – FDIC insurance up to $250,000
Investment Consideration: Is Money free of market risk and price fluctuation?
Yes – fixed rates; interest rates credited have the potential to change over time, but are guaranteed not to be less than the guaranteed minimum interest rate stated in the contract Yes – fixed rate; rate does not have potential to change
Investment Consideration: Is Interest free from current taxes?
Yes – not taxed until money is withdrawn No – interest is taxed each year
Investment Consideration: Guaranteed minimum interest rate
Insurance company sets a minimum rate that can never go below that. Interest rates will vary depending on current market conditions and the length of time to maturity
Investment Consideration: Probate Avoidance?
Yes – the Annuity is passed directly to named beneficiary No – goes through probate
Investment Consideration: Ability to make cash withdrawals without penalty?
Generally able to withdraw a portion of account value, usually 10% a year, without a surrender charge2 If you withdraw money prior to the maturity date, you may pay an interest penalty
Investment Consideration: Guaranteed lifetime income with additional tax benefits?
Yes No
Investment Consideration: Capable of stretching to a beneficiary?
Yes No
  1. Guarantees dependent upon the claims-paying ability of the company.
  2. Values withdrawn prior to age 591⁄2 may be subject to a 10% IRS penalty tax

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