Annuities vs. CDs March Report
Most dramatically, the 10 year MYIG annuity yielded more than a full percent than the comparable CD. The annuity provided a yield of 3.40% compared to only 2.25% for the CD. Also, the 5 year annuity provided marginally higher yield than the 5 year CD. In the 3 and 7 year terms, the CD rates were higher than annuities.
To do this annuities vs. cds comparison, we did not use national averages.
|Term||Top Yielding CD*||High Yielding A Rated Annuity**|
Annuity rates for 3, 5 and 7-year terms have dropped compared to the prior month, while the 10-year term has remained unchanged. This shows insurers/annuity providers are seeking long-term investments over short-term commitments. Yield on 3-year CDs have gone up substantially over the prior month, which indicates banks are pricing in higher inflation and a possible rate hike by the Federal Reserve.
* 3 Year CD, First listed CD on Bankrate under national offer (CIT Bank), 5 year CD first listed under national on Bankrate offers (Ally Bank), 7 Year, First listed CD on Money Rates (Pentagon Credit Federal Credit Union), 10 Year, First listed CD on Money Rates (Discover bank)
** 3 Year, Northern American Company Guarantee Choice 3, 5 Year, American Equity Investment Life Insurance, Guarantee 5, 7 Year, Northern American Company Guarantee Choice 7, 10 Year, Northern American Company Guarantee Choice 10
What is a MYIG Fixed Annuity?
A Multi-Year Interest guarantee (MYIG) annuity is often called a called “CD-Type” Annuity. With a traditional fixed annuity, your interest rate can fluctuate. With a MYIG fixed annuity, the interest rate is set for the life of the annuity (or until your able to withdraw funds without penalty). In short, both a CD and a fixed MYIG annuity pay a fixed interest rate over pre-determined period time.
Both may have fairly large penalties if you need to access your money before the pre-determined period of time is over.
There are three differences between CDs and Annuities that should be highlighted:
CDs are FDIC insured. Annuities are not insured by the federal government. However, the rates for all the annuities in the table come are A-rated by AM Best. Accessing money placed an annuity before the age of 59 ½ triggers large tax penalties. You can move money from one annuity another without triggering penalties.
Fixed annuities including MYIG are tax deferred investments, similar to an IRA.