Looking for some of your thoughts on fixed annuities through my bank to rollover traditional IRA CD that has matured.
Cannot get more than .50 % interest rate on cd renewal but a fixed 5 yr. annuity will pay 2. 50 %, big difference.
Can you mention any reasons as to why this would be a mistake ?
SAVAGE SAYS:I’m not saying it’s a bad idea — BUT you should know how this particular annuity works. There are likely to be penalties for withdrawal within the first 5-7 years. That means you are stuck! There is likely no liquidity if you need your money. The other thing to think about is how you would feel if suddenly (out of fear of inflation, or if the Fed ends its easing) interest rates rise. Then you’d be stuck earning “only” 2.5 percent in a world where saver could possible earn much more!
So if you don’t need money until the end of the “surrender period” (the penalty period), and if you don’t think rates will rise during that time, then you can do the fixed annuity — Just don’t put ALL of your money into it!
PS One thing that also should be said is that your bank CD is federally insured, while an annuity is a contract with an insurance company, so make sure you choose a highly rated company.