Annuity FYI Visitor Blog

An equity linked CD is a certain type of a certificate of deposit in which the rate of return is linked to a stock index such as the S&P 500.  Equity linked CD’s are issued by banks and insured by the FDIC, offering the confidence that your investment is always secure.  When you compare equity linked CDs with annuities, you’ll find that the products offer a lot of the same benefits.  Principal protection is one of the main benefits offered by both retirement products.  They also offer low cost compared to other retirement vehicles and the chance to participate market upswings.  While the equity linked CD and the annuity are different retirement options, they offer similar benefits and may be useful in combination when determining your retirement portfolio.

Annuity FYI recommends Wells Fargo’s equity linked CD.  The product, Wells Fargo SGI WISE US Index, has the best benefits that Annuity FYI has seen in this type of product.  The CD term is 6 years with a participation rate averaging 90%-100%.  There are no spreads, caps, or fees and the minimum investment is only $1,000.  The FDIC guarantees 100% of the principal amount invested.  While there may be other equity linked CD products recommended by Annuity FYI in the future, at this time the Wells Fargo SGI WISE US Index is the only one believed to be best for retirement portfolios.

An article by Mark Czachowski, which recently appeared in the Effingham Herald, gives a good overview of the similarities and differences between certificates of deposits (CDs) and fixed annuities. While they are both judged to be relatively low-risk investments, neither is for everyone.

A CD is issued by a bank and insured by the FDIC (Federal Deposit Insurance Corporation) for up to $100,000 per depositor. CDs offer lower interest rates than annuities, but are better for short-term investments (one year or less) where early withdrawal penalties would make annuities untenable. Their tax bite is also higher for longer periods of time, because a CD’s interest earnings are taxable in the year they are accrued; regardless of whether or not you take the money out. Unlike fixed annuity rates, in most cases a CD’s rate of return is not adjusted during its lifetime.

In contrast, an annuity is backed by the strength issuing insurance company’s finances, and is not protected by the federal government. Most states have insurance guaranty associations that guarantee at least a portion of your investment, in the rare event that an annuity or life insurance company fails. Still, rating agencies like A.M. Best, Standard & Poor’s, or Moody’s offer evaluations of insurance companies that should be researched prior to buying any financial product.

Annuities are preferable for most long-term investments due to their higher interest rates (resulting in more interest compounding) and more favorable tax status, says Mark. With tax deferred annuities, accumulated earnings are not treated as taxable income until the money is withdrawn. Unlike CDs, fixed annuities are also likely to offer guaranteed minimum interest rates.