CD Type Florida Annuity
A retiree with cash living in Florida in todays market is seeking an investment that carries with it a high degree of safety. You may consider a certificate of deposit from the bank (CD) which will give you a Federal Deposit Insurance Company (FDIC) guarantee up to $250,000 against the bank ability to repay the CD. It is important to remember that the $250,000 guarantee would apply to the aggregate amount of money you had with the bank. So if you plan to invest more than that it should be spread among different banks so that you maintain the FDIC guarantee.
A CD type Florida annuity will not have any FDIC protection. However it is still deemed to be a conservative investment. Firstly it is backed by the financial strength of the issuing company. As such it is very important to check the Insurance company’s financial rating through sources sources such as A.M. Best, Standard & Poors and Fitch. Secondly many insurance companies are affiliated with the guarantee association in their state.
So let’s say that you are a retiree in Florida and you are looking for a high rate from a CD- what are your options. To analyze the return on your CD or CD type Florida annuity you will have to factor in interest rate earnings and taxation. A CD will offer a guaranteed interest rate for a fixed term - usually the longer the term , the higher the rate. All of the CD earnings are taxed on an annual basis weather you withdraw the money or not. The effect of the yearly taxation loss will reduce the annual compounding of a CD’s return.
The CD type Florida annuity can guarantee an interest rate for a year or for several years. The earnings however are tax deferred, which will allow the savings at equal interest rates to compound faster. The CD type Florida annuity earnings will be taxed only when you withdraw them.
Another factor to consider here is penalties for early withdrawal. An early surrender of a CD will bring a penalty, so too for a CD type annuity. If your needs are short term and intend on accessing most of the money within a year or two, then a better choice would probably be the CD. However if you plan includes a longer time horizon than the CD type Florida annuity may be a better choice.
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