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Three Year Fixed Annuity
Old 11-24-2015, 05:35 PM   #1
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Three Year Fixed Annuity

I am planning on depositing $80K in a 3 year CD for 1.75% per year. The CFP at the bank is promoting a 3 year Fixed Annuity at 1.95% per year. I looked through the documentation and there appears to be no fees of any kind. The CFP says there are no fees. It seems that the only real difference is the early withdrawal penalty which is much much higher than the CD.

Am I missing something? I though all annuities had fees. Does the Fixed Annuity make sense? I'm 99.9% sure I won't need the money in less than 3 years.

thanks
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Old 11-24-2015, 05:40 PM   #2
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Does the annuity pay out throughout the three years or only at the end? Might be inconvenient to reinvest.

Both the CD and the annuity have "fees", you just don't see them. Without them you'd get a higher interest rate.
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Old 11-24-2015, 05:42 PM   #3
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What happens if you die within the 3 years?
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Old 11-24-2015, 08:59 PM   #4
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Originally Posted by jkern View Post
I am planning on depositing $80K in a 3 year CD for 1.75% per year. The CFP at the bank is promoting a 3 year Fixed Annuity at 1.95% per year. I looked through the documentation and there appears to be no fees of any kind. The CFP says there are no fees. It seems that the only real difference is the early withdrawal penalty which is much much higher than the CD.

Am I missing something? I though all annuities had fees. Does the Fixed Annuity make sense? I'm 99.9% sure I won't need the money in less than 3 years.

thanks
Fixed annuities are similar to CDs. Any fees are built into the interest rate in that product. The annuities with various fees tend to be the variable annuity flavors. However, you don't get FDIC protection but the interest isn't taxed until you receive it (in the third year in your case assuming it is in a taxable account). Six of one or half dozen of another to me.
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Old 11-24-2015, 09:30 PM   #5
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Fixed annuities do have fees and expenses, you juts don't see them and the insurer makes money off interest rate spread. Personally, I'd take the CD for the FDIC and if you can access the money by paying a penalty. Without the potential for mortality credits or fitting the annuity into a wider ladder strategy it doesn't seem worth the inflexibility....or marginal extra return.
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Old 11-24-2015, 09:48 PM   #6
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Who is the insurer? You are accepting credit risk of the insurer in return for an extra .2%. It had better be pretty solid for such paltry spread.
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Old 11-25-2015, 05:18 AM   #7
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What happens if you die within the 3 years?
these short term annuity's carry no mortality credits so they are no different than a cd from an insurer . your beneficiary's get the money .

these are different then life annuity's where those who die pay for those who live .
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Old 11-25-2015, 11:08 AM   #8
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Thanks for everyone's input. I was trying to understand this product.

* Not FDIC insured
* Severe surrender charges
* Pay tax at end of term vs. yearly

I don't think the trade offs are worth 0.2%
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Old 11-26-2015, 11:05 AM   #9
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The CFP says there are no fees.
Hmmm, I wonder how this charity that he is running pays for rent?
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Old 11-26-2015, 11:46 AM   #10
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Easy, the insurer pays the bank a commission upon the sale and the CFP probably gets a piece of what the bank gets.
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