CD Annuities are insurance products that ensures a guaranteed rate of interest on the money that is deposited till the policy natures. It doesn’t matter how long the maturity period might take, 5 years or 15 years, the same interest rates will be provided. CD types annuities is usually offered by credit unions, banks and other financial institutions.
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In simpler terms, CD annuities can be described as a kind of a savings account. This means that there is no risk element involved in creating a CD account as they are fully insured. The difference between a savings account and a CD account comes from the fact that a CD annuity is provided for a fixed period of time which can range from 5 months to 5 years.
The interest rate offered is also fixed for annuities. In most cases, the bank or the financial institution would provide CD openings with the intention of keeping it till the maturity date.
Once the policy matures, the investor is given two choices. He or she can either withdraw the money or transfer the money into another investment annuity program for a couple of more years. If the policy holder decides to withdraw his or her funds, it can be done without the surrender charges being required to be paid as long as you do not take out more than the allowed amount of either interest only or up to 10% depending on the policy.
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At the time of the withdrawal, if the policy holder is not 59 1/2 years old, he or she will be charged an IRS penalty of 10% on the earnings.
The usual policy rules when it comes to interest rates on fixed annuities are:
• The larger the principal amount, the greater should be amount of interest received. But this is not a fixed rule and sometimes it is not followed.
• If you plan to invest in a CD type annuity for a longer period of time, most financial institutions would provide you with higher rate of interest. This trend might not be followed during periods of financial depression or time periods that precede a recession.
• Certain smaller financial institutions might offer greater interest rates than bigger ones in the hope to attract greater number of investors.
Most CD type annuities offered by various banks and financial institutions have their own minimum deposit requirements. The annuity investors can arrange for their interest payments to be transferred directly to their accounts or mailed to them as checks. The option for receiving payment of interest is usually fixed at the time of opening an account only.
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