Cd rates are down due to the “Rona”. I have CDs maturing that I need to reinvest. My Fidelity advisor has suggested a 3 yr fixed deferred annuity. I understand these may be insured in case of institutional collapse, but I really know nothing. I’m retired and risk averse. About 3.5%.

Any knowledge of these? Comments?

A couple things off the top of my head...

Annuities are NOT guaranteed by the Fed in case of institutional collapse, unlike CDs. They are backed only by the insurance company that issues them. That's why it's important to know the financial safety rating of the issuing company (A.M. Best, Moody's, S&P).

Annuities are retirement products, so normally you can't use the money without a tax penalty until after 59-1/2, but you say you are already retired, so that wouldn't be a problem.

Fixed annuities, unlike variable annuities, are considered fairly safe vehicles, so they would fit your risk profile.

Understand there are signifcant surrender fees should you liquidate before maturity. On the other hand, if you decide to continue with another annuity, it is very simple to transfer to a new one (via a 1035 exchange for non-qualified funds).

Given the current interest rate environment, a fixed annuity may indeed be a good alternative to CDs, as long as you understand the slightly higher risk and other differences.

I would normally say to run from anyone trying to sell you an annuity unless you are in very specific circumstances. That may still be good advice.
In the present environment, relatively short term, I would stick to a simple FDIC cash account at a bank. No way you're going to earn any sort of significant return from anything safe so might as well place it in the safest and most flexible option until things clear up a bit.
Much better opportunities could come up as we go forward so I'd keep it simple right now.

Annuities can have a 4.5% front load.

quote:

Originally posted by maxdog:

Any knowledge of these? Comments?

My knowledge of annuities is limited to the maxim that if you don't understand what they're trying to sell you, you don't want it.

Annuities are one of the most complex financial instruments (usually) because they are bad for the investor and very lucrative for the agent.

Very few, if any, fixed annuities have front loads (i.e. a sales commission) these days. Most variable annuities have these fees, often as high as 7% or even higher.

However, I'd like to know more about this 3-year fixed with a return of 3.5%. That's too good to be true. Sounds more like a 7-year contract.