Choosing one type of guaranteed investment over another depends on your needs, financial capabilities and risk tolerance. Fixed annuities are retirement investment products that may suit your goals better than bank CDs or Treasury bonds. However, certain restrictions and limitations attached to annuities might not be present for other investment types. You must carefully evaluate the potential impact on your present and future financial stability before contributing money.
Annuities are retirement investment vehicles created and maintained by life insurance companies. Several different types of annuities exist, each with its own set of pros and cons, and not all annuities are suitable for every investor or situation. Fixed annuities typically feature a predictable interest rate and protection from market volatility. Both the principle and interest in fixed-annuity contracts are guaranteed by the issuing insurance company.
Certificates of Deposit
Bank CDs, like annuities, are available with a variety of options and from countless providers. They offer consumers a safe place to grow lump sums of money that are not needed for daily expenses. CDs and fixed annuities alike carry a specified interest rate and term. Money used to purchase a CD remains shielded from economic industry downturns and is guaranteed to be available. Bank deposits, including CDs, are insured by the Federal Deposit Insurance Commission. Annuities are not protected by the FDIC, and guarantees -- which are made by the issuing insurance company -- are based on the company's claims-paying ability.
Treasury bonds are IOUs from the U.S. government. Anyone may purchase Treasury bonds in increments of $100. These bonds don't mature for 30 years, but during that time the owner will receive a guaranteed quarterly interest payment. When the 30-year term expires, the bond's face value is returned to the owner. Since bonds are purchased from the U.S. Treasury, the assurances and guarantees associated with them come directly from the government.
Similar to CDs, bank savings accounts provide a government-insured place to save money. Ordinary savings accounts offer a fixed annualized interest rate, and both the principle and accumulated earnings are guaranteed by the FDIC. Unlike annuities, savings accounts do not restrict access to money or penalize account owners for taking withdrawals before they retire.
Gregory Gambone is senior vice president of a small New Jersey insurance brokerage. His expertise is insurance and employee benefits. He has been writing since 1997. Gambone released his first book, "Financial Planning Basics," in 2007 and continues to work on his next industry publication. He earned a Bachelor of Science in psychology from Fairleigh Dickinson University.