Financial advisor Gary Garrison says that now is a good time to rollover CDs into fixed annuities. Andrea Finney of Arkansas Matters conducted the interview in “Quick Tips On Certificates of Deposit With Gary Garrison.” October is the time of year when most CDs are up for renewal and you might be better off choosing to take your money away from CDs because of the low interest rates. For a long time, interest rates for CDs held steady around 5%. It’s hard to find an interest rate of even 1% now for CDs. It is no longer feasible for retirees to roll their money over every five years or so into a new CD and live off of the interest they have gained. This was a popular retirement strategy in the past that has to be modified now because of low interest rates.
One option when your CD matures is to roll it over to another CD and be locked in at the current interest rate. Another option is to invest that money in equities like stocks or mutual funds. You will have the potential for a greater return, but also the risk of losing everything. A better option than those would be to take your money and buy a fixed annuity. Fixed annuity rates are higher than CD rates. While they can be lower than investing in equities, they don’t have the risk that comes along with stocks and mutual funds. There is even the option of purchasing fixed equity indexed annuities that are a hybrid of both investments.
Not only do fixed annuities typically offer a higher rate of return than CDs, they are also tax-deferred. You don’t have to pay taxes on your investment until you begin receiving the money in payments, rather than the strict expiration date of a CD. Fixed equity indexed annuities offer some participation in market upswings along with the protection against market downsides. Some fixed annuities allow you access to some of your principal before the product matures, which is not the case with CDs. Other annuities do not allow you early access to your principal though. CDs have FDIC insurance, which is a big protection against losing your money. Fixed annuities are guaranteed by the insurance company who sells them though. In the case that something happens to that insurer, states run a guarantee fund that covers your annuity up to a certain value. Fixed annuities are a low risk investment that could be a good option when it comes time to look at your CD renewal.