If you consider yourself a “conservative” investor, you generally avoid high-risk investments. Both fixed annuities and CDs (certificates of deposit) are considered low-risk investments. Both guarantee a positive, fixed rate of return. But which is better for you?

To determine which investment better suits your needs and goals, consider the following criteria:

Risk

· Fixed annuities are guaranteed by the issuing insurance company, which is required to keep dollar-for-dollar reserves on all premium payments. They are not a bank, and are not insured by the FDIC.

· CDs are usually backed by banks and insured up to $100,000 per depositor by the FDIC.

Access

· Annuities usually allow owners to withdraw a certain percentage of their value (usually 10% annually, free from charges) without cost, though tax penalties may apply. Amounts withdrawn in excess of this amount are subject to surrender charges, which decline year by year and expire after a certain number of years.

· Banks charge a penalty if funds in a CD are withdrawn prior to maturity, meaning that an investor should wait until the CD matures before withdrawing to avoid fees.

Term

· Fixed annuities are long-term investments. Interest rates can increase or decrease at renewal periods. Investment terms for fixed annuities typically range between one and ten years, although some offer a limited investment period.

· CDs offer a wider range of shorter terms, such as 90 or 180 days, as well as one or multi-year terms.

Income

· Fixed annuities are intended to provide savings as well as income. Most offer methods of payouts, one of which usually guarantees an income stream for life.

· CDs are designed to act as a savings vehicle, rather than provide income. However, interest from CDs can be used as income upon maturity.

Tax status

· Earnings on fixed annuities are tax-deferred until withdrawn, allowing investment interest to fully compound. Liquidated earnings are subject to ordinary income tax and may be subject to a surrender charge.

· Earned interest in CDs is taxed annually regardless of whether such interest is withdrawn.

Liquidated earnings are subject to ordinary income tax, may be subject to surrender charges and, if taken prior to age 59 1⁄2, may be subject to a 10% federal income tax penalty.

Guarantees and payment of lifetime income are contingent on the claims paying ability of the issuing insurance company.

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