Beware of Annuities Updated August 3, 2020:   If you are like most people, you don't suddenly wake up and say "I need to buy an annuity."  Odds are you have some cash that you want to invest safely at the highest interest rate possible.  Many banks looking to enhance their profits at the expense of the best interest of their customers take advantage of this desire to get higher rates. 

Annuities are insurance products that usually carry high fees, surrender charges and other items that are great for the annuity seller but not always for the buyer. A CD with a great rate nearly sells itself (see Best CD Rates) while most annuities need commissioned sales people to sell them.

Background.  I originally posted the first iteration of this article when my local Savings and Loan, World Savings owned by Golden West Financial, was offering high "teaser rates" on CDs to get deposits.  It turns out they were working hard to gather assets "under management" to get a better price when they sold out to Wachovia Bank just before the financial collapse where Wachovia was taken over by Wells Fargo Bank.

I had taken a lot of profits in the rising stock market before the financial collapse in 2008 and wanted to invest some of those in safe, reliable CDs that paid great rates. I searched high and wide for the best FDIC savings rates then reported my findings on my web sites.  These pages made great money as banks looking to raise capital paid a hefty fee bidding to get their ads on my pages.  

Better Rate Trap: When I asked my branch teller if they had any other "special rates" that they often have for new money, I was directed to a speak to a "representative" who eventually tried to sell me a fixed annuity.   The annuity they offered had rates similar to what I could get elsewhere but it had many "strings" that made it far less attractive.   Some of the strings may include:

• A guaranteed rate of return over the life of the contract that may be far less than the "teaser" or starting rate. If you have to dig to get a straight answer why you can't get a fixed rate for the life of the contract, then I'd walk away.
  
  
• The rate after the first year is often an amount that may be set at the insurance company's discretion subject, however, to the minimum amount.
  
  
• Liquidity can be an issue.  With a CD, you usually have to pay back some interest if you have to close it early.  Annuities can have much higher fees as they try to capture the fees they would get if you held to maturity.