Studies show that the two most popular months for CDs to renew is October and April. In April, many people have received an income tax refund or from completing their taxes a portfolio adjustment is made. October has proven to be a popular month for renewal because most banks offer a 6 month CD. In today’s economic environment, most banks are offering less than 1 percent interest on a 6 month CD. If you’re desiring a 2+ percent rate of return, you have to commit to leaving your money with them for at least three years.
Certificate of Deposits (CDs) are designed for short term investments. An alternative to CDs are Multi-Year Guarantee Annuities (MYGAs). Multi-Year Guarantee Annuities are offered by Life Insurance companies. They offer a guaranteed fixed yield for specified maturities similar to CDs. Insurance companies offer MYGAs with maturity periods from 3 to 10 years (sometime longer). The maturity period is the length of time beyond in which there are no surrender charges due upon liquidating the policy. Although CDs and Annuities share many of the same characteristic, they certainly have some differences….below is a brief listing of some of their more notable differences.
- Interest Accumulation –Any interest that is earned on a Certificate of Deposit is to be declared each year on your Income Tax. All interest accumulated in an Annuity is tax deferred.
- Early Withdrawal – If you have an emergency and need money out of a CD you may receive a penalty. Some Multi-Year Guarantee Annuities offer a free withdrawals or the ability to sweep your interest.
- Interest Rates – Typically, banks are offering a very low rate of return. Many Life Insurance Companies will provide Multi-Year Guarantee Annuities with higher rates of return when compared to bank CD offerings with equal durations.
- Income – Certificate Deposits are not structured to create an Income Stream. Life Insurance companies offer the opportunity to have a monthly, quarterly or annual income stream as a benefit.
- Insurance – Bank CDs are insured by the FDIC up to $250,000. Multi-Year Guarantee Annuities are backed by the financial strength of the Insurance Company you choose and backed by your state’s State Guaranty Association.
Before renewing your CD, it may be wise decision to compare all of the benefits of a Multi-Year Guarantee Annuity.
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