CD Annuity vs. Traditional CD: Understanding the Key Differences

Many investors are choosing to invest in a CD annuity instead of a traditional CD. While they are similar, they have a few key differences as well. Here are a few things to consider about the differences between CD annuities and CDs.

Returns

With a CD annuity, you will usually be earning about 1 percent more than you would with a traditional CD. This leads many investors that were previously earning good returns with a CD to seek out CD annuities.

Who Offers Them

Another difference between these two types of investments is where you purchase them. You can buy CDs from a bank or financial institution. With a CD annuity, however, you will be working directly with an insurance company to make your purchase.

Guarantees

Both types of investment will guarantee you a certain percentage of return over a period of time. With this in mind, you should also understand who is standing behind this guarantee. With a CD, your investment is insured up to $100,000 by the FDIC. This means that if the bank goes under, the federal government will step in and reimburse you. With a CD annuity, the insurance company may be covered by your state's guarantee association. You need to check with your insurance agent to make sure that you would be covered with this type of investment.