Positioning an indexed annuity vs. a CD


Positioning an indexed annuity vs. a CD

By now I think it’s safe to say we’re all aware CD rates continue to sit at all-time lows. According to bankrate.com, the average five-year CD has an interest rate of 0.79 percent.

For retirees who are using the interest from a CD as income, this is very unfortunate. Through no fault of their own, their income is being reduced by as much as 75 percent as these CDs mature.

Due to this low-rate environment, many CD buyers are looking for options and are now willing to consider an annuity when they may not have in the past.

Example: Seven-year indexed annuity with an investment of $100,000

Fixed-rate strategy: 2 percent (locked in for seven years on monies initially deposited)

Performance Trigger: 4.15 percent

Clients who are considering renewing their five-year CD at 1 percent would generate $1,000 of interest annually. However, with this same $100,000, they could place $50,000 into a fixed-rate strategy to generate the same $1,000 of interest, then position the remaining $50,000 into the performance-trigger account at 4.15 percent. If the S&P 500 ends negative, the client will still earn the same $1,000 from the fixed strategy. However, if the S&P is flat or positive, they earn an extra $2,075 for the year.

An indexed annuity could be a great way to generate a significantly better return for these investors while guaranteeing protection of their principal investment.