A Certificate of Deposit (CD) and a Fixed Annuity both offer protection of principal and are considered wealth building tools. That said, the largest difference between them depends on the objective of the individual.
If you are saving for the near future such as a wedding or down payment on a house, there is no question that a CD is better than a Fixed Annuity. This is because you can choose a short term on a CD and when the term is complete, you receive your funds back plus the interest accrued (up to the amount insured by the FDIC).
For long term investing, the Fixed Annuity delivers the perverbial one two punch on the CD with the combination of deferred taxation and lifetime distribution of funds. A Fixed Annuity is not good in the short term because of the high surrender charges incurred by closing out the account in the first few years. But, this surrender charge is also the vehicle that allows you to reep the benefits of rates as high as 7%.
With a qualified Fixed Annuity (an annuity where you are transferring qualified retirement funds), you can rollover IRA or 401k funds into a safe long term Fixed Annuity without triggering penalties and taxation. This tax deferred compounded interest is where the true power of a Fixed Annuity lies.
In addition, a Fixed Annuity allows you to grow the interest until a future date (such as retirement), or you can take systematic interest distributions for living expenses.
For more about how a Fixed Annuity could be right for a portion of your retirement planning, call Steve Russell at 850-221-8334.