Looking For Higher Returns On Your CDs?

Have rates on your CDs been going down? If you're tired of not earning any money on your CDs look no further than a Fixed or an Equity Indexed Annuity.

To start, let's look at the definition of a Fixed Annuity and Equity Indexed Annuity are.

Fixed Annuity: A Fixed Annuity is a type of contract in which the life insurance company pays an interest rate for a specific period at the time the annuity is purchased. At the end of each guaranteed period, the rate is raised or lowered based on the company's interest rate policy. Contracts guarantee a minimum rate for a set period of time and the principle is guaranteed by the company. During the time of your contract you generally have the ability to withdrawal 10% each year should the need arise. In addition if you become terminally ill, confined to a nursing home or die the contract could be ended early at no penalty, giving you or your beneficiary complete access to 100% of the money. You can also defer taxes while your money remains inside of the annuity. That means if you don't withdrawal the interest from the account you don't pay taxes on it. You only pay taxes when you withdrawal the earned interest.

Equity Indexed Annuity: An Equity Indexed Annuity is a mix between a fixed annuity and investing directly in the stock market. To better understand this lets do an example. Let's say you are trying to figure out whether to invest in a diversified portfolio of mutual funds (stock market) or in a Fixed Annuity from Annuity Rate Shopper. The mutual funds offer you the greatest possibility for growth, while the Fixed Annuity may limit your growth but offers the most safety with a guaranteed interest rate. An Equity Index annuity allows you to choose how long of a contract you want (3,5,7 or 10 years). As long as you leave your money in the contract for that time period you will receive the greater of 3% per year or the stock market return whichever is greater. The 3% may be less than a traditional fixed annuity but you have the ability to participate in the upside of the market.

Now that both annuities are defined, here are some other facts to know. Fixed annuities almost always pay a higher rate of interest than do CDs and Equity Index Annuities offer you the highest potential rate of return while still guaranteeing you a small rate of interest if the stock market goes down.

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 issued by large financial institutions, CDs issued by banks. But they both possess inherent differences as well with annuities having more advantages than CDs.

As mentioned, annuities have generally higher returns, are tax deferred and have liquidity.

CDs do have FDIC protection to guard against bank or banking industry failure while annuities have safety measures put in place by the state to ensure insurance companies have reserve pools in place to back their policies.

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. This allows the investor to check on the solidity of an insurance company who is issuing the annuity. This is helpful in contrast to investing in a bank in that banks are not rated and one never knows how strong they are.

Annuities, like CDs, are hinged to interest rates. But when rates are low so are CD returns whereas annuities have a minimum guarantee in place, usually 3% or 4%. Your investment will never dip below the guaranteed minimum interest rate during times of falling or low interest rates. Low interest rates mean CD returns will be low as well. To offset the problem of low or falling interest rates, insurance companies equip annuities with guaranteed minimums. This is an agreed minimum rate of interest so that your investment is assured not to fall below the minimum performance even if CD rates do.

Another advantage annuities have over CDs is that while you have to pay annual taxes on CD interest earned without being able to withdraw funds until your investment term is over, with annuities, there is also a set term, and the earnings are tax-deferred. You only pay taxes on interest earned when money is withdrawn. So with annuities the deferred tax on your interest remains in the investment earning you more and more money, instead of being paid out to state and federal tax agencies on a yearly basis.

Last, CDs do not allow you to withdraw any monies during term. Annuities have provisions that allow you to withdraw money, generally 10% of your account value annually plus many contracts allow you to remove the earned interest on a monthly basis. Several other contract provisions allow you access to all of your funds such as in the event you are hospitalized, undergoing a life-threatening illness, subjected to a permanent or extended stay in a nursing home, or other major calamities that affect you economically. In addition, annuities can be structured to pay out for the life of the owner over a fixed term such as five or ten years, thereby spreading out your tax-burden and providing enhanced income security.

So if you are looking for higher returns and the safety your CD has offered you, ask about annuities.