Nowadays consumers have a variety of choices. There are a number of annuity products available in the market. One of the most popular annuity products is fixed annuity. It has proved to be a very valuable tool in case of retirement planning. Fixed annuities are available in two major forms. One is for those who have a deferred payout and the other one is for those who carry an immediate payout. The immediate annuities look for payout income on inception. Deferred annuities tend to defer payment to a later date.

Fixed annuities are usually compared with the certificates of deposit by the investors who are seeking safety. Both of them are believed to be lower risk investments, although they are actually a lot different. Like any other financial products, one should always evaluate the pros and cons while determining the product and see which one is more applicable in case of your financial needs. There are certain factors which you should always consider, while you are trying to figure out a plan that suits the best in your case.

* The first major factor is to consider the rate of return. Fixed annuities usually tend to base their interest rates on the current market conditions along with the time to maturity. The longer you keep waiting for the maturity, the yield would be higher. The fixed annuity rates tend to be traditionally higher than that of the CD rates due to the longer maturity periods and rate conditions.

* Another major factor is that of liquidity. CDs might provide for a much shorter time horizon, yet it does not mean that they are liquid in nature. When you purchase a CD, you are bound to stay with the time period for that CD, which in most cases happens to be for a year. In case, if you withdraw any amount of the principal prematurely, you would be subjected to interest penalties. Fixed annuities offer penalty free access of around ten percent of the purchase price annually, whereas some might take it collective up to a definite purchase.

* Another important factor is that of tax liability. In case of tax deferred fixed annuities, the earnings within the annuity are not subjected to taxability until they are withdrawn. This may offer its own advantages, like tax control, along with a higher potential for growth.

This entry was posted on Wednesday, September 30th, 2009 at 10:37 am and is filed under Annuity. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.