Advisors Blog

Your Guide to CD Rollovers vs. Annuities

Published on October 29, 2018

By: Gregg Kaufman, CLU, CFP

October has traditionally been the busiest month of the year for bank CD rollovers, possibly because many 6-month CDs are sold right after tax refund time in the spring and are now coming up for renewal. Before your client locks in another 6-months or longer of relatively low CD rates, perhaps they should consider higher guaranteed rates of today’s fixed annuities that have several other advantages besides just great payouts. See this week’s rate special 3.55% guaranteed for 5 years.


CD interest accumulates annually and clients will receive 1099s each year, whereas annuities grow tax deferred. The annuitant might receive a 1099 at the end of the annuity period if the contract is cashed out – but may also 1035 exchange to a new annuity contract, locking in a new guaranteed rate and deferring taxes for years to come.


Upon death of the annuitant, an annuity pays directly and immediately to the named beneficiary and avoids the lengthy probate process. CDs and bank accounts can name beneficiaries but many accounts fail to do so and end up being probated.


CDs are FDIC-insured but annuity companies are backed by state guarantee associations and more importantly are backed by highly-rated insurance carriers that have met all of their obligations for 100 or even 150 years. GBS generally quotes A-rated or better companies with rate guarantees from 3 to 10 years.  


Most annuity contracts have penalty-free withdrawals of up to 10% per year while in the surrender period. Some have other provisions to allow access to funds in the event of an emergency, such as terminal illness or confinement to a nursing home. Keep in mind that annuities have an early access penalty of 10% of gain for withdrawals taken before age 59 ½.  


Some seniors may be taxed on up to 50% of their Social Security income depending on the so-called “provisional income” calculation that looks at income from multiple sources as well as Social Security benefits. Funds growing in a tax-deferred annuity may shield seniors from this tax burden in some years where a CD or bank interest might not. Clients should consult a tax professional to determine exactly how bank interest vs. annuity tax deferral might affect their income tax in any given year.


For annuities that compete well with CDs, click below for our list of the latest Multi-Year Guaranteed Annuities (MYGAs) for rate guarantees from 3 to 5 years or more. This list is updated weekly with the top rates, which are currently 3.55% or more, depending on deposit size.

Call us for all your annuity needs! We specialize in MYGAs, SPIAs, Fixed Annuities, Indexed Annuities and more.



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