CDs v Annuities: Which Might Be Right for You?

Written by on December 3, 2012 in Money - No comments | Print this page


Annuities are gaining in investment popularity as the economy remains sluggish. Thousands of mutual fund investors lost considerable retirement funding in 2008 and are looking for surer methods to fund their eventual retirement hopes. What exactly are annuities, and when might they be advantageous?

What They Are

Annuities are long-term, guaranteed-income investment vehicles through insurance companies, and there are thousands of them from which to choose. Some are consider the “blue chip” equivalents of those tried-and-true, perennially reliable, low-return but steady stock investments, but others might be considered nightmares. What type of annuity you purchase should depend on your tolerance for risk and your own long-term income needs.

Many people have the impression that annuities are automatically guaranteed-income investments. While you might invest in one that has the rider included, if you’re young, don’t count on it going into effect for several years. You should always ensure the insurance annuity has that later possibility, however. If it doesn’t, you might consider a different annuity plan that offers other similarities but does present that retirement income guarantee.

CDs v Annuities

As noted above, CDs are usually considered short-term investment vehicles. Most CD holders opt for holding a CD through periodic renewals a maximum of five years, though some hold the investment for 10 to 15 years. Annuities are often considered for decades-long investments.

If you choose to automatically reinvest your CD benefits into the principal, remember that CDs are not tax-deferred, which can reduce the total investment amounts. Annuity investment funds, on the other hand, are completely tax-deferred until you withdraw funds. Be sure to include the tax burden in your financial projections for retirement, depending on how much you withdraw each year. Most people aim for  4 to 5 percent of the total amount available upon retirement, allowing for at least 20 years’ worth of withdrawals.

Annuities also traditionally pay higher interest rates than CDs in most fixed-interest annuities. As the stock market prices are either plateaued or rising, annuities will almost always outperform CDs. If stock prices are down, CDs might gain slightly more in the short-term. However, since annuities are not invested in the stock market, you never lose your principal, unlike the risk of CDs and other investment types.

Transfer of Ownership

If you pass away early, CDs might allow transfer of ownership, but they must be funneled through the probate court, which can take months before the new owner receives funding.

Annuities, on the other hand, transfer ownership immediately as IRAs can allow. Unlike CDs that have heirs, annuities through life insurance companies have beneficiaries, avoiding probate courts altogether. Annuity benefits will be mentioned during probate, but transfer of ownership is not delayed or hindered.

Annuities offer another death-related benefit. Outlining different beneficiaries with differing benefit amounts is a snap.


If you don’t have a large nest egg or long-term financial security to invest in an annuity, CDs and other retirement vehicles might be a method to gain that initial amount. Long-term probabilities and the guaranteed income available through annuities are increasingly popular over the instability and delay in influence over mutual funds or the short-term investments of common CDs. Just choose  the right annuity with the right conditions, then invest wisely for long-term security if annuities are right for you to manage finances in your retirement.

This is a guest post.  Written by Jaye Ryan, a freelance writer who enjoys discussing retirement funding options.

Image courtesy of suphakit73 /


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