CDs or Fixed Annuities: Which Is Better for You?

By Brent Meyer — SafeMoney.com Founder & Editor Reviewed by Licensed Financial Professionals  |  SafeMoney.com — Trusted Since 2011  |  Updated Regularly Quick Answer: Should you choose CDs or fixed annuities for retirement savings? Compare rates, tax advantages, safety, and liquidity to make the right choice for your goals. As many of us know, October is the renewal month for many bank certificates of deposit. Some common selling points for bank CDs are low risk and steady earning potential. But today’s low interest rate environment throws some real curveballs for retirement savers. In fact, CD rates have remained low for some time now. And what interest rates might be in the future still remains unclear. With the diminished prospects for wealth accumulation, many people seek an alternative to bank CDs and their low yields. When used properly, annuities are often tapped as transfer-of-risk strategies. Many Americans rely upon them for lifelong income security, dependable asset protection, or other financial assurances. Nevertheless, annuities of the fixed variety – particularly fixed index annuities (FIAs) and multi-year guarantee annuities (MYGAs) – can also offer value as tax-efficient savings vehicles. If you are looking for alternatives to CDs, here’s a quick look at fixed index annuities and multi-year guarantee annuities – and how they can differ from today’s low-yield bank CDs as retirement-savings solutions . Looking to the Past Compared to past data, CD rates have been low for a prolonged period. Statistics from the Federal Deposit Insurance Corporation (FDIC) show this difference. This graph illustrates monthly interest rate trends for only six-month CDs. But they do offer insights into how overall rates have declined over time. In the early 2000s, interest rates on CDs hovered around 4.4-6.2% – a sharp contrast to how rates are bottoming out at 0.12-0.13% today. To show how much six-month CD rates have declined overall – compare that with when, at times, rates were at 15% or higher. Now consider a bundle of historical trends for six-month, one-year, and five-year CD interest rates, ranging from 1984 to 2016. These data is courtesy of BankRate.com , which compiles national rate averages from banking institutions across the United States. All of the CD interest rates have been on a downward trajectory and continue to linger below 1.75%, partially fueled by a low interest rate-setting agenda by the Fed. In the context of ac