A quick Google search will show April and October as popular CD (certificate of deposit) renewal months. Currently the national average on a 12 month CD is less than 1%. A further search shows a 5 year CD will barely return more than 1% per year. If you desire more than a 2% rate of return, multi-year guaranteed annuities (MYGAs) are an option worth consideration.
MYGAs are an alternative to CDs offered by insurance companies. Annuities offer a competitive rate of interest over a specified time period. Similar to CDs, MYGAs also have surrender charges or penalties for liquidating the policy before the term has ended. If you had the means to purchase a CD, a multi-year guaranteed annuity (or fixed annuity) may be a better solution. While MYGAs and CDs are similar, there are some key differences (some may be surprising) listed below:
- Interest rates – when compared over like time periods, MYGAS are currently offering higher interest rates than CDs.
- Free withdrawal provisions – unlike CDs, many MYGAs have free withdrawal (sometimes as much as 10% of account value) after the first contract year. Additionally, money can be withdrawn for skilled nursing care, terminal illness, or upon death.
- Income – once an annuity surrender period has been met, MYGAs offer the benefit of a lifetime income (monthly, quarterly, yearly, etc.). Or the complete account value can be liquidated.
- Tax deferral – interest from CDs must be declared in your yearly income taxes. Conversely, MYGAs are a legal tax shelter. Meaning, interest accrues tax deferred. No taxes are paid on the interest gains until the money is withdrawn.
- Insurance – CDs are insured by the FDIC up to $250,000. Annuities are backed by the financial strength of the insurance company and the state guaranty association.
For more information, please contact us at (419) 893-223 or info@bluhmandassociates.com.