CD Annuities: Advantages & Disadvantages for Retirement Planning

CD type annuities are a popular form of investment for people planning for retirement. This type of investment carries with it some advantages and disadvantages. Here are some of the pros and cons that you should know about CD type annuities.

Pros

One of the main advantages to this type of investment is that you are guaranteed a certain rate of return throughout the life of the annuity. By comparison, many annuities will guarantee an interest rate for only the first year or two of the annuity contract. This provides you with some certainty in your investment.

Another advantage of this type of investment is that interest rates tend to be higher than those of traditional CDs. You can earn 1 to 2 percent more with this type of investment.

Cons

One of the disadvantages of this type of investment is that it is not insured by the FDIC (Federal Deposit Insurance Corporation), as traditional CDs are. You are dealing with an insurance company, and that is not insured by the FDIC. If the insurance company were to go out of business, you might not be able to get your investment back.

Another disadvantage of a CD type annuity is that you will have to pay penalties if you decide to cash out early. This means that you will have to leave your money alone for a certain period of time.