With the stock market in steep decline , people are looking for safe places to invest their savings. Many banks and investment companies pushing annuities. Annuities offer a higher interest rate than CDs , but are they safe ?
You could be seen as a tax deferred CD an annuity. You pay no taxes on the interest until you begin drawing the annuity . But there are some important differences between an annuity and a CD .
An annuity is a product that is offered by an insurance company. With large companies such as Enron , Kmart , Worldcom , and United Airlines bankruptcy, you can guarantee that the insurance company will not fold , leaving you with nothing ? Insurance companies are assured of reinsurers such as General Re . But it does not matter how great a company is , you can not be sure that it does not fold. The bankruptcy of a large insurance company would cause the reinsurer to collapse along with it.
Bank CDs are insured by the Federal Deposit Insurance Corporation ( FDIC ) up to $ 100,000 per bank. The FDIC is a branch of the U.S. government , which, as you know, the people who print the money . If they go bankrupt , we will have more to worry about than just losing our savings !
A new type of annuity called a charitable gift annuity has come on the market recently . These are issued by charitable organizations . You give your money to charity , you will receive a tax benefit , and in return the charity promises you a fixed fee for life. Unfortunately, this system has a method for scammers .
The charitable gift annuity is added to scam top ten list of the North American Securities Administrators Association. They state that charitable gift annuities are subject to virtually no federal regulation . Here in Arizona , 430 investors lost their savings in a Ponzi scheme run by the Mid - America Foundation Inc.
Banks and investment companies hawking annuities promote the higher than CD rates , but they fail to reveal hidden fees and high withdrawal penalties early. If you need to access your annuity before age 59 ½ , you could be subject to a 10 percent penalty .
With the recent bankruptcies , and the discovery that many large companies are cooking their books for the year , I feel it is best to play it safe . If you love the thrill of the risk , or if you have already purchased an annuity I wish you luck . As Will Rogers said, "I 'm not as concerned about the return ON my money as I am about the return of my money " .
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