In the Expert Click article “Fixed Annuities vs. CDs: Is One Better Than the Other?,” financial planner Greg Womack weighs the pros and cons of the different investments. Whether fixed annuities or bank certificates of deposit (CDs) are best depends on each individual situation. Investors can also look into equity linked CDs, which have some characteristics similar to both annuities and CDs. CDs and fixed annuities are both safe investments, however unlike the FDIC insurance banks provide CDs, fixed annuities are backed by the insurance companies who sell them. If you want to invest over the long term, annuities are more the investment for you because CDs tend to be useful for short term investments.
Consider the rate of return you will receive with your investment. While fixed annuities and CDs tend to offer similar interest rates for similar products, the longer you hold an investment you usually receive more interest. Since fixed annuities are meant for the long term, you most likely will get more guaranteed interest with this investment. The equity linked CD criteria is different from both fixed annuities and traditional CDs because your interest is based on a stock market index, more like a variable annuity. There are definitely tax benefits associated with fixed annuities, so if you have any concern over paying taxes the deferral and social security calculations offer great benefits with your annuity product over your CD. Annuities are meant to provide you payments over your lifetime, while CDs are beneficial when you want to take a lump sum out at maturity. Weigh the pros and cons of all investments with your future goals to see what investment is best for you.