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Over the years, bank CD’s have always been a safe investment opted by many people close to their retirement age. This is because of the non-risk factor associated with them and also for the fixed returns promised. However, people today are more far sighted and market savvy and are aware of better options like fixed annuities. A fixed annuity is of somewhat the same nature but has other benefits associated with them.

Most fixed annuities have more than competitive rates, often beating bank rates by percentages. Fixed annuities often offer a guaranteed rate similar to the bank. Unlike the bank CD, when the guarantee ends, there is also a contractual minimum. Normally this amount is low but in an environment of rapidly dropping interest rates often looks quite attractive.

Just like bank CDs the fixed annuities have a duration during which you have to hold on to them and by the end of this, a penalty applies. This duration is termed as surrender period in case of a fixed annuity. Also not cashing the annuity at the surrender period in case you miss it will not make you eligible for a penalty. You can just cash it at a later date. The case of CDs is the reverse. Missing out on the surrender period means the CDs will roll over with a penalty period. Thus you end up paying through your nose in fees to the bank.

Taxation of the growth is also an important factor. Those preparing for retirement find that much of the growth on their CD goes to taxes, regardless of whether they roll it into the next CD or take the funds. People with fixed annuities don’t face this dilemma.

If you purchase a fixed annuity while you are employed and if your income falls within the high tax bracket then you have the advantage of the tax shelter offered by this annuity. Your tax liability is only at retirement time when you remove funds to supplement your income at that stage. By then you would fall in the lower income bracket thus making the tax amount to be paid on growth of the annuities quite minimal.

The advantage of governmental guarantees offered by the fixed annuities makes sure that they are never dissolved prematurely. Each state has numerous insurance companies supporting these annuities other than the Federal Depository Insurance Company. Thus every state is equipped with an Insurance Guarantee Fund which ensures that even if one of the insurance companies supporting the annuity goes out of business others will pitch in to supply necessary liquidity or else take over the clients.

A fixed annuity imposes 2 restrictions on the investor which can be considered a compromise to enjoy the tax-deferred status that it promises. One is that you have to wait until you are 59 before you avail any returns from it or else you have to concede to the clause of taking systematically equal installments from it until you are 59 or in the least for 5 years. If you do not comply with these clauses you get impose a 10% penalty on the growth. Thus the nature of the fund signifies that it is solely meant for retirement solutions.

Find an agent or browse through the net for more information on this investment option. A fixed annuity certainly suits those looking for maximum returns through a fixed option.

John C. Ryan discusses financial retirement options including fixed annuities and the other annuity types. Did you like this article? To learn more about how a fixed annuity compares to Bank CD’s or other financial options, visit our website.