Annuity Trends
9 Key Differences Between Fixed Annuities and CDs
We answer some of the most common questions we get from potential clients regarding CDs and fixed annuities.
July 2020: How Today’s Fixed Annuity Rates Compare
Published July 7, 2020
Fixed income yields are at historic lows, but there are plenty of fixed annuities offering 3%+ yield. Be sure to understand the insurer’s financial strength and that the withdrawal provisions before purchasing and make sure they fit with your intended use of the product.
This article was originally posted on Forbes.com and can be viewed here.
It’s a challenging time to get yield on your fixed income investments. Insurers who offer fixed annuities take in premium and invest it largely in these fixed income investments. So, fixed annuity rates are not immune from the current rate environment.
This makes it more important than ever to see what’s available across the market, because rates can vary from one insurer to another by 2% or more (even for insurers with the exact same financial strength rating).
Towards the bottom, I’ve listed the rates in effect as of today, July 1, 2020. But if you’re reading this article after early July, you’ll probably want to click on this link to get today’s fixed annuity rates: current fixed annuity rates. Remember to make sure to filter by your state since not all products and rates are available in every state.
All fixed annuities described in this article provide a preset rate of return for a predetermined period of time with the ability to liquidate the product at the end of the guaranteed term without incurring penalties.
These specific kinds of fixed annuities can, in some sense, be thought of as insurer-issued CD-like products that are typically higher yielding than their CD counterparts. See more detail in the chart below.
There are, however, a few of important things to consider before jumping into a fixed annuity purchase:
- Fixed annuities often come with long guarantee terms and limited ability to withdraw money. Be sure you understand the withdrawal provisions and any penalties, and always consider your budget and need for easily accessible funds.
- Fixed annuities are not FDIC insured. Financial strength ratings always matter, but especially in times of market stress. The guarantees provided by fixed annuities are backed by the claims-paying ability of the insurance company offering the product. Often, there is a tradeoff between the competitiveness of the interest rate on the annuity and the financial strength rating of the company.
- Funds withdrawn from fixed annuities before the purchaser turns 59½ will incur a 10% fee from the IRS on earnings.
Today’s Annuity Rate Overview: July 2020
Top Rate: Sentinel Security Life (3.55%, B++, 10 year term); Atlantic Coast Life (3.55%, B++, 10 year term)
Top Rate for a Product Allowing Withdrawals: Atlantic Coast Life (3.50%, B++, 10 year term)
Top Rate from A+ Insurer: North American ( 3.25%, A+, 7 year term)
Top 3 Year Rate: Oceanview (3.00%, A-)
Top 5 Year Rate: Sentinel Security Life (3.35%, B++); Atlantic Coast Life (3.35%, B++)
Top 7 Year Rate: Sentinel Security LIfe (3.45%, B++)
3-4 Year Annuity Rates
Oceanview (A.M. Best: A-) has the highest 3 year rate of 3.00% and allows you to withdraw 10% of your account balance each year. Oxford Life (A.M. Best: A-) has the highest 4 year rate of 3.05% and allows you to withdraw the interest earned in the first year and 10% of your accumulated account value in the second year and beyond.
5-6 Year Annuity Rate
Sentinel Security Life (A.M. Best: B++) has the highest 5 year rate of 3.35%. Atlantic Coast Life (A.M. Best: B++) has the highest 6 year rate of 3.42%. This is an effective rate, resulting from a 4.25% rate in the first year and a 3.25% rate for the remaining 5 years in the guaranteed term. Neither of these products allow for free withdrawals during the guarantee term. The top rate for a product that allows withdrawals comes from Atlantic Coast Life for both the 5 and 6 year term at effective rates of 3.30% and 3.37%, respectively.
7-8 Year Annuity Rate
Sentinel Security Life (A.M. Best: B++) has the highest 7 year rate of 3.45%. This product does not allow for free withdrawals during the guarantee term. If you’d like to take withdrawals, the best 7 year rate is 3.39% with Atlantic Coast Life (A.M. Best: B++). This product allows for free withdrawals of the interest earned. North American (A.M. Best: A+) has the highest rate for an A+ rated insurer at 3.25% for the 7 year term. Oxford Life (A.M. Best: A-) has the highest 8 year rate of 3.10%.
9-10 Year Annuity Rate
Sentinel Security Life (A.M. Best: B++) and Atlantic Coast Life (A.M. Best: B++) have the highest 10 year rate of 3.55%. Neither of these products allow for free withdrawals during the contract term. If you’d like to take free withdrawals, Atlantic Coast Life has another version of the product that pays 3.50% for the 10 year term and allows for free withdrawals of the interest earned. American National (A.M. Best: A) has the highest rate for an A rated insurer at 2.80% for the 10 year term.
Conclusion
Fixed income yields are at historic lows, but plenty of 3%+ yielding fixed annuities are still available in the market. But proceed with caution, making sure to understand the insurer’s financial strength and that the withdrawal provisions fit with your intended use of the product.
Disclosure: Includes all insurers on the Blueprint Income platform. Does not include annuities available only to captive agents or sold directly by the insurer. The annuity’s guarantee is subject to the claims-paying ability of the insurer.
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