What Is The Difference Between An Annuity And A Certificate of Deposit

What you should know about the differences between annuities and certificates of deposit

Key Similarities

What is the primary difference between an annuity and a certificate of deposit? The Certificate of deposit is an account that many choose as a means of financial management, due to its viability as an interest bearing account. An interesting characteristic of the certificate of deposit is that the investor has the option of locking the interest rate for a given period of time. The option of locking the interest rate for a specific period of time offers the investor the option of controlling the interest that the certificate of deposit account accrues over a given time period, which will invariably work to the investor’s advantage. Annuities also offer the option for the investor to set the interest rate for a given period of time, and to have that interest rate guaranteed by the insurer. The option of having a guaranteed interest rate for a set period of time gives the investor the advantage of being able to make a reasonable prediction on his return. Return predictability is an advantage annuities offer.

Key Difference

The primary difference between the annuity and a certificate of deposit, is the fact that the interest earned on the certificate of deposit is taxable. The interest earned on the annuity is tax deferred , which makes it the preferred option for investors over the certificate of deposit. The taxable nature of the certificate of deposit makes it a viable option for those investors who are concerned more with the security of their investment than the tax advantages associated with the plan.

Financial Guarantee

A primary difference between annuities and certificates of deposits are their insurers. Annuities are insured by insurance companies and certificates of deposits are insured by the FDIC

Related posts

1. What Is The Purpose Of A Certificate Of Deposit?
2. How Does the Interest Work On a 6 Month Certificate of Deposit?
3. What Is The Different Between A Certificate Of Deposit And An Ira?
4. What is an Annuity?
5. What is a Certificate of Deposit

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