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Annuities vs. Bank CDs

Understanding the Differences

When considering whether to invest in a fixed annuity or a bank certificate of deposit (CD), there are several points to consider.

The following chart illustrates important key differences. Details are provided below.

Fixed Annuity Bank CD
Safety of Principal
Tax Benefits
Minimum Interest Guarantee
Interest Rate Fixed Fixed
Early Withdrawal Fees or Charges
Waiver of Surrender or Withdrawal Charge
Avoids Probate
Taxable Impact on Social Security Benefits
Principal Liquidity without Charges
Lifetime Income

Lifetime Income

Annuities: Depending on the nature of the annuity contract.

Bank CDs: No lifetime payment options.

Safety of Principal

Annuities: Fully guaranteed by the company by which they are issued. Annuities issued by Western-Southern Life Assurance Company are backed by the full financial strength of one of America’s most highly rated financial companies.

Bank CDs: FDIC Insured to at least $250,000 per depositor, per ownership category, per bank.

Tax Benefits

Annuities: Earnings compound tax-deferred until withdrawn. Withdrawals prior to age 59Ĺ are generally subject to a 10% IRS penalty tax.

Bank CDs: Interest is taxable in the year in which it is earned, even if not withdrawn.

Early Withdrawal Fees or Charges

Annuities: Declining for a specific period of time, then none. Withdrawals prior to age 59½ are generally subject to a 10% IRS penalty tax.

Bank CDs: Early withdrawal penalties may apply if funds are withdrawn before maturity date.

Minimum Interest Rate Guarantee

Annuities: A minimum rate is guaranteed.

Bank CDs: Initial Term only, no guarantee on renewals.

Waiver of Surrender or Withdrawal Charge

Annuities: Depending on the state and contract, death, disability, nursing home confinement, and terminal illness are some of the available waivers.

Bank CDs: Early withdrawal penalties may be waived if the CD owner dies or is declared mentally incompetent.

Probate Asset

Annuities: Not as long as there is a named beneficiary other than the heir who is not your estate.

Bank CDs: Not as long as ownership is Joint and Survivor or Payable on Death (POD) is named.

Taxable Impact on Social Security Benefits

Annuities: None. Taxes are deferred during accumulation.

Bank CDs: Yes.

Principal Liquidity without Charges

Annuities: Generally, a portion of the accumulated value may be taken without a surrender charge.

Bank CDs: Typically, you have liquidity on earned interest only.

Bank CDs discussed on this page are based on traditional CDs and may not reflect some of the features and benefits that non-traditional or specialized CDs offer.

This description is an illustration of available benefits. The exact terms of the benefits and the applicable provisions and conditions are contained in the contract. The contract contains terms under which it may be continued in force or discontinued. This product may not be available in all states, and the product features vary by state. See your financial professional for details and limitations.

Western & Southern Life does not give legal or tax advice. Any discussion of federal taxes here is not intended to be complete or to cover all situations. The comments are general in nature and should not be considered tax advice. You should consult counsel or other specialized advice for more complete information.

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Last Updated: 8/1/2017