Annuity Education: CD Annuities Explained
What are CD annuities? That is a very interesting question with an even more interesting answer. The fact of the matter is that there really is no such thing as a CD annuity. A certificate of deposit (CD) is issued by a bank, whereas an annuity is issued by an insurance company. Why then do so many people refer to certain types of annuity products as CD annuities?
When somebody uses the term CD annuity or CD-type annuity, what they are typically referring to is a multi-year guarantee annuity (MYGA). Bank CDs and multi-year guarantee annuities are frequently compared because of the similarities between their product design and the way they credit interest. The term CD annuities or CD-type annuity is simply industry jargon used to describe a MYGA. For a more complete discussion of this type of annuity, please visit our Multi-Year Guarantee Annuities page.
Just like a bank certificate of deposit (CD), a multi-year guarantee or CD annuity credits a specific and guaranteed fixed interest rate for a set number of years. The interest rate and the number of years it will be applied are contractually guaranteed by the insurance company issuing the policy.
One big difference however, is that the interest earned with a non-qualified MYGA will grow tax-deferred as long as it is left to grow and compound inside the annuity. But the interest earned with a bank CD must be reported and taxed each year, even if it is not withdrawn.
Please watch this short video for additional comparison points between bank CDs and multi-year guarantee annuities:
Clients who choose to deposit their money in a principal protected MYG annuity can rest assured knowing the exact interest rate that their annuity will earn and the exact amount of time, typically 3-10 years, that it will earn that interest rate. Multi-year guarantee or CD annuities are encouraged by many financial advisors because they are predictable retirement savings products and insurance companies cannot reduce the interest rate during the interest guarantee period.
CD-type annuities (MYGA) are available from some of the top insurance companies in the country. The interest rates offered on these annuity products are typically higher than can be obtained from a bank CD with a comparable term. To see a listing of the best cd-type annuity rates currently available, please visit our Top Multi-Year Guaranteed Annuity Rates page.
At AnnuityAdvantage, we strive to help our clients make smart and informed retirement planning decisions. If you have any questions or require additional information, please give us a call. One of our licensed Annuity Specialists would be happy to assist you, without any hype or sales pressure.