What is a Fixed Annuity and how can I benefit from it? I hear this question a lot from people looking for a CD alternative or Bond alternative for their savings. They have heard that a fixed annuity might be a good option, but they are not completely familiar with how they work. With interest rates being so low these days, it is no surprise that people need alternatives to CDs and Bonds. So let’s take a look at what a fixed annuity is, how it works, and how it might benefit you.
What is a fixed annuity?
There are a few various types of fixed annuities. But the most common type used as a CD alternative, is the fixed rate annuity. The technical name for this within the industry is a fixed rate deferred annuity. It is also called a multi-year guarantee annuity myga.
This type of fixed annuity received a guaranteed interest rate for a set number of years. Terms range from as few as three years all the way up to 10 years. The longer the term the higher the interest rate you get, and the shorter the term is the lower the interest rate is that you receive.
During the specified term, you are able to access part of your money if you need to. At the end of the term you are free to move your money wherever you like without any penalty of an early surrender charge.
Who offers fixed annuities?
Fixed annuities are sold by insurance carriers. Many top rated insurance companies offer fixed rate annuities that can be used as a CD alternative. When selecting the company to use you should consider both the interest rate and the financial rating of the insurance company. You always want to use a company that has a B++ rating or higher. That is the equivalent of what is considered investment grade in the bond market.
How secure is a fixed annuity?
Fixed annuities are one of the safest Investments that you can obtain. They are guaranteed by the insurance company that issues them. Surprisingly, life insurance companies are highly regulated and have very strict rules on how conservative they must be with their clients funds. There is also a highly regulated safety net operated by the state Insurance departments. You can read more about this safety net at nol ga.com .
All of this combined means that fixed annuities are an extremely safe and conservative investment. Because of these reasons, no one has ever lost any money investing in a fixed rate annuity.
Can I access my money with a fixed annuity?
You are able to access a good portion of your money with a fixed annuity. Most annuities allow you to withdrawal up to 10% of the account value per year. Others allow you to withdraw only the amount of interest earned for the year. If you withdraw over the specified percentage, the excess amount will be subject to an early surrender charge.
Am I free to move my money with a fixed annuity?
At the end of the term you are completely free to move your money out of the fixed annuity. It can be into a new annuity with a better interest rate or a completely different investment product all together. Because fixed annuities are tax-deferred for non IRA funds, be sure to take into account any taxes that you will owe on your gains. If your fixed annuity is classified as an IRA account, you will need to move your funds to another product that is approved by the IRS to fund an IRA.
How can I find a fixed annuity?
The best way to invest in a fixed annuity is to use an independent agent who specializes in the Annuity Market. Annuity Rates fluctuate and change on an almost weekly basis. An annuity specialist can shop the market and find the highest rate offered from all of the top annuity carriers.
Feel free to contact me if you would like to speak to an annuity expert.