Annuities Outpace CDs on 3, 5 & 10-year Terms

(April 18, 2012)  The 10 year MYIG annuity yielded only 0.15 percent more than the comparable CD, a clear sign of narrowing spreads since the difference was higher in the previous months. The 10-year annuity provided a yield of 3.15% compared to 3.00% for the 10-year CD. Also, the 5-year annuity provided substantially more yield than the 5-year CD (0.61 percent more). In the 3-year terms the rates were closer. However, for 7 year terms, the trend reversed with 7-year CDs yielding more than 7-year annuities (0.45 percent more).

To do this comparison, we did not use national averages.

We know the readers of LearnBonds are looking for the best rates. We compared top yielding CDs found on Bankrate and Money Rates to the highest yielding annuities. Here are the results:

Term Top Yielding CD* High Yielding A Rated Annuity**

3 Years 1.420% 1.45%
5 Year 1.690% 2.30%
7 Year 3.000% 2.55%
10 Year 3.000% 3.15%

* 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 a pre-determined time period.
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 that should be highlighted:

  1.  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.
  2. Accessing money placed an annuity before the age of 59 ½ triggers large tax penalties. However, you can move money from one annuity another without triggering penalties.
  3. Fixed annuities including MYIG are tax deferred investments, similar to an IRA.

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