Ask Jean: What Are The Differences Between CDs And Annuities?

If ask jean what are is on your radar, this short guide cuts through the noise. Here is what is worth knowing, and how to put it to work today.

Key Takeaways

• A reader asks HerMoney CEO Jean Chatzky about the differences between CDs and annuities.
• Q: Can you please explain the difference between annuities and certificates of deposit (CDs)?
• Would one of these be a good addition to my retirement plan?

A reader asks HerMoney CEO Jean Chatzky about the differences between CDs and annuities.

Q: Can you please explain the difference between annuities and certificates of deposit (CDs)? Would one of these be a good addition to my retirement plan?

A: While CDs and annuities share some similarities, they’re very different financial products. CDs are best for short- to medium-term savings, while annuities are typically long-term retirement investments. Here’s the scoop on each.

A CD is a “timed deposit account,” basically, a savings vehicle where your money is locked in for a fixed period. CDs offer a fixed interest rate, typically higher than a standard savings account and a set withdrawal date, ranging from months to years. Generally, the longer your money stays put, the more interest you earn. It’s up to you whether the rate difference between, say, a three-month and a six-month CD is worth leaving your money untouched a bit longer.

Annuities are a category of insurance products and investments. There are some (immediate fixed annuities and deferred fixed annuities) that you purchase in order to generate a specific amount of income in retirement, either right away or down the road. There are others in which you save money to grow and make a decision on how you get your money out (withdrawals or an income stream) down the road.

Where I think you’re confused is that there is an annuity called a MYGA, which stands for Multi-Year Guaranteed Annuity, that is frequently used as a CD substitute (or vice versa). You save money in a MYGA for a period of years, then start taking income down the road, or roll it (like you’d roll a CD) into another annuity. If you’re looking for a good MYGA primer, check out this one from our friends at Gainbridge.

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Final Thoughts

Before you check out, double-check ask jean what are against current offers and any coupons you can stack. Small habits like this add up to real savings over a year.

Originally published at savingswitch.com.