Savings accounts vs Fixed Annuities?
You work hard for your money and you want to see your nest egg grow, but choosing the right savings vessel can prove tricky with so many products on the market. Savings accounts and deferred annuities are both designed to grow your money over the course of time. However, these two product types work very differently, provide you with certain benefits and expose you to certain risks.
Let's look at the difference between earning 3.6% (the current rate 12/1/2018 for a 5 year fixed annuity) vs. .1% (the current rate for most savings accounts) over just 10 years would mean to your nest egg.
$50,000 invested in the savings account at a bank or credit union with just .1% over 10 years grows to $50,502.
$50,000 invested in a fixed annuity at 3.6% over 10 years grows to $71,214!
That is a $20,712 difference over 10 years!! What’s the “Catch”? Here are the differences.
Savings - The money sitting in your savings account at your bank is very liquid. You can spend it today. The bank/credit union MAY start charging you bank fees on your accounts if you drop below a certain amount.
Fixed Annuity - The money in your fixed annuity is also liquid as you can typically withdraw up to 10% per year without any form of charges. The annuity will have a sales charge that declines over a period of time until it goes away. At that point you can withdraw all of your money without any fees.
Savings - The money in your savings account is backed by the FDIC (if it is in a bank) or NCUSIF (if it is in a credit union). Both are government organizations.
Fixed Annuity - The fixed annuity is backed by an insurance company. Most of these insurance companies have been in business for over 100 years and are financially very stable.
Savings - The interest you receive in your savings account is taxable every year.
Fixed Annuity - The interest paid to you in the fixed annuity is tax deferred. You would not have to pay taxes on the interest until the end of the fixed annuity. Even if the savings account was paying you the same rate, the taxes on the savings account would mean less money in your pocket!
Are differences number 1 and 2 worth $20.712 dollars? I surely don’t think so. Difference 3 favors the Fixed annuity!
John Darr is an insurance agent with 25+ years in the business. I like to help people with Fixed and Fixed indexed annuities because they provide peace of mind AND competitive interest rates. Contact me if you would like to put your savings to WORK!
JDarr@DarrSchackowinsurance.com or 352-338-0552