|
Key
Features
|
Traditional
Fixed Annuities
|
Certificates
of Deposit
|
| Guaranteed
Principal |
Yes
Backed by the claim paying ability of issuing insurance company |
Yes
Backed by financial institution and FDIC or NCUA/ NCUSIF insurance
up to $100,000
per depositor |
| Fixed
Interest Rate |
Yes
Initial rate fixed for given time period; new rate set for each
renewal period. |
Yes
Initial rate fixed for given time period; new rate set if CD
is "rolled over." |
| Appeals
to Conservative investors |
Yes
Principle value does not fluctuate with stock and/ or bond market. |
Yes
Principle value does not fluctuate with stock and/ or bond market. |
| Tax-deferred
Interest |
Yes
During accumulation phase* |
No
Earnings currently taxable. |
| Highly
Liquid |
No
Not during accumulation stage (except for free withdrawal amount,
generally 10 -15%) |
Yes
Except for early withdrawal penalty (see next row). |
| Early
withdrawal penalty |
Yes
Surrender charges apply during early years of contract, and
earnings withdrawn before age 59 ½ may be subject to
a penalty tax. |
Yes
Not as heavy as a fixed annuity, generally lose some interest
if CD is redeemed prior to maturity. |
| Income
Options |
Yes
Variety of income options including lifetime payments, payments
for a certain period of time, or systematic withdrawals. |
Limited
Interest payments available in cash when credited to account,
or accumulated for payment at maturity. |
| Avoids
delay and expense probate |
Yes
If proceeds paid directly to named beneficiaries. |
No
Unless held as "payable on death" or in trust accounts. |
| When
Suitable |
For
long term financial goals, such as retirement. |
For
shorter or intermediate tern financial goals, such as vacations,
house down payments, or college expenses expected within 5 years. |
