Looking for the Best Rate on a Fixed Annuity? Shopping Around Really Pays Off – Kiplinger’s Personal Finance

If you’re looking for a haven for your money, with a three-year fixed-rate annuity, you can choose one paying 2.00% annually or one paying 4.25%! Other than the rate, the two products are quite similar.

If you’re shopping for a five-year guarantee, available rates range from 2.60% to 4.65%, according to AnnuityAdvantage’s database of annuity rates.

Rates on annuities with the same term vary hugely. If you don’t shop around, you’ll almost certainly earn far less interest than you could. Unfortunately, many local annuity agents represent only a few annuity companies, sometimes just one.

Before I offer tips on how to shop around, here’s some background:

A fixed-rate deferred annuity (also called a multiyear guarantee annuity, or MYGA) resembles a bank certificate of deposit. It also pays a guaranteed rate of interest for a set term. Unlike CDs, annuities are tax-deferred. Issued by insurance companies, annuities aren’t federally insured like CDs, but state-mandated guaranty associations offer a level of protection.

While the rate isn’t the only factor in choosing an annuity, it is the single most important thing when other factors are equal. Here are the key considerations.

How long will your money be committed?

The term is the length of the annuity guarantee period. Most multiyear annuities go from two to 10 years.

Longer-term annuities usually pay more than shorter-term ones. But today, rate differences are not large. For instance, the top three-year annuity in our database now guarantees 4.25%. At seven years, you can get up to 4.72%, and at 10 years, 4.75%.

Is it worth tying up your money longer for a slight bump in the rate? It all depends on your situation and view of future interest rates. One solution is to put part of your money in a three-year annuity, for instance, and part in a five-, seven-, or 10-year contract. This is sometimes referred to as an annuity ladder.

How much can you take out while the policy is in force?

When the term ends, you’ll have the option of getting your principal plus all your accumulated interest back if you’ve reinvested interest. You can then take the proceeds in cash and pay taxes on the accumulated interest (assuming it’s a nonqualified annuity). However, you can continue to defer all taxes by rolling the money over into a new annuity at the same insurer or transferring it to a different insurer via a 1035 exchange.

What if you want or need some or all of your money back before the term ends? If it’s some of your money, you may not have a problem, since most annuities permit …….

Source: https://www.kiplinger.com/retirement/annuities/605258/looking-for-the-best-rate-on-a-fixed-annuity-shopping-around-really

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