The Annuity vs. The CD

Of all the different terms in annuities and investments, one particular term stands out quite well, and this is the CD. Obviously, this is not the famous CD that we know. The CD in the world of annuity and investments actually stands for bank certificates of deposit. It is different from an annuity, and is in fact, being compared to it with a competitive inclination. CD is another investment option that can work well for retirement planning, just like an annuity, so they are two options that face an individual who is preparing for his or her retirement. That's why they are often pitted against one another. But aside from that particular similarity, a CD and an annuity are very different from each other based on several factors.

First, they differ on the range of investment options they offer. CDs are usually just invested into bank debts, money markets, and the likes. On the other hand, a variable annuity, representative of the entire annuity clan, offers more investment options to the person planning his retirement. An annuitant, under a variable annuity contract, can enter his or her financial assets into various investment funds such as stocks, bonds, bond funds, and the likes. Annuities also allow the annuitant to manage the various investments and even make adjustments to them.

Second, they also differ based on the security they give you with regards to your investment. Certain types of annuities can be stipulated so as the principal investment entered by the annuitant into the contract will remain, at all costs, protected and unmoved. This is about as safe an investment can get. Aside from that, the annuitant can also receive a guaranteed amount of earnings regularly, no matter how the investments fare. Talk about security, right? On the other hand, investments entered into a CD can only be protected up to a certain extent. That extent is the limit pf $100,000 insurance by the FDIC. Thus, this tells us that, obviously, a person meaning to invest an amount of money higher than $100,000 should get an annuity instead of a CD. A person aiming to invest an amount less than $100,000 is the only type of person who will not face high risks from getting a CD.

Thirdly, the CD and the annuity defers when it comes to taxes. Accumulated earnings through CDs are immediately taxed as soon as they are earned. On the other hand, an annuity gives the annuitant access to tax-deferred earnings. The earnings will simply accumulate without getting taxed. The only time that an annuitant will be taxed is when withdrawals are made. The account withdrawn will then be taxed. This means that you can put off paying taxes on earnings for an entire year if you don't make a withdrawal.

Finally, CDs and annuities also differ based on other minor factors. For example, the source of each type of investment differs. CDs can be taken from banks, while annuities are available from insurance companies.

To sum up, however, it seems apparent that annuities offer more advantages than CDs. Annuities provide more options, a higher level of investment security, and the tax-deferral benefit. If you are confused as to which type of investment to take, the best way is to ask advice from a financial advisor to help determine which is best for you.