Bank Certificates of Deposit (CDs) vs Fixed Annuities
Multi-Year Guarantee Annuities (MYGAs), also called Fixed Rate or CD-type Annuities, are a type of fixed annuity that provide a pre-determined and contractually guaranteed interest rate for a specified period of time, most commonly 3-10 years. For this reason, they are often compared to Bank CD’s.
Please watch this short video for a good comparison of Bank CDs vs Fixed Annuities:
In addition, those in a 31% tax bracket can increase the growth on their bank deposits by 45% with tax-deferred fixed annuities. Here’s how it works:
If your Certificate of Deposit (CD) earns $1000 in annual interest income, shortly after year’s end, you’ll receive a 1099 for $1000 to report on your tax return. This means you’ll owe Uncle Sam $310. That $310 equals 31% of what you earned, but it represents 45% of the amount you get to keep ($310 divided by $690 = 45%).
By transferring your savings to a CD-type annuity, you eliminate the 1099 and get to keep that $310 in interest to compound tax-deferred. It’s like borrowing from Uncle Sam at 0%.
Also, fixed annuities typically pay interest rates that are higher than bank CDs. If you’d like to see what types of interest rates are currently available, please visit our Top Multi-Year Guaranteed Annuity Rates page.
Other key differences between Bank CD’s and Annuities are compared in the table below:
If you’d like some assistance in sorting through the vast array of fixed annuity options, please feel free to give us a call. Our Annuity Specialists are here to be helpful, and there are never any fees or charges for our services.