Are CDs Your Best Option?

Would a fixed annuity or CD be suitable for you? It’s important to consider your individual circumstances and financial goals. Let’s delve into the distinctions below: 


In our current economic environment, fixed interest rates are very attractive, reaching levels not seen in over 15 years. As I am writing this article, we are seeing short-term CDs (3-6 months) offer rates as high as 5.15% (annual rate of return), and longer-term CDs ranging between 5% and 5.5%. However, it’s worth noting that longer-term CDs (24+ months) are beginning to decrease their fixed rate of return. This is happening because there is a perception that the Federal Reserve has finished or is close to finishing raising rates, and banks don’t want to be on the line for longer-duration CDs with higher interest rates. A similar trend can be observed in the annuity markets.  


Fixed annuities are contracts that provide a guaranteed return on your lump sum over a specified period. One advantage of fixed annuities is that they can provide a fixed rate of return (competitive with CDs) for a longer period than most CDs offer. For instance, some 5-year fixed annuity rates can be as high as 5.25%. Why would I consider taking a lower rate of return than a CD? The main benefit of a longer-term fixed annuity over a shorter-term CD is the assurance of a competitive rate of return for an extended period, which can be beneficial if you are in a similar camp to me and anticipate a potential decrease in interest rates within the next 2-5 years.  


For the first time in 12 months, fixed annuity rates have started to decrease, signaling that annuity carriers (insurance companies) might believe that interest rates have peaked and could be on a downward trend in the next 2-5 years.  


Insurance companies can invest in bonds that provide them with a fixed rate of return (coupon rate). They then package annuities for clients, offering an attractive fixed rate of return based on the bond rate of return and duration. The insurance company benefits from the spread between the coupon rate they receive, and the fixed annuity rate offered to clients. The client, in turn, gets a fixed rate of return guaranteed by the insurance carrier. The bond default risk is taken on by the insurance carrier and the annuity client receives a guaranteed fixed rate of return. 


You might wonder why someone would choose a fixed rate annuity instead of buying higher-yield bonds directly. One reason is that insurance companies can access bonds that may not be available to individual investors due to the large amount of money they invest, potentially yielding higher returns. Additionally, some bonds held by insurance companies have longer holding periods than the fixed annuities they sell, which might not align with an individual investor’s preferences. 


Both fixed annuities and CDs can be advantageous, depending on your situation. If you currently have a fixed annuity, rates may have increased, and there might be better options for you. I’m open to discussing your fixed income options, as well as the pros and cons of CDs, fixed annuities, and bonds tailored to your unique circumstances. My belief is that now is an opportune time to secure a fixed rate if it aligns with your financial objectives. Please don’t hesitate to reach out to our office if you have any questions or would like to discuss your options further.





PHONE | 515-274-8006




Securities offered through Parkland Securities, LLC, member FINRA ( and SIPC ( Investment Advisory services offered through SPC, a Registered Investment Advisor. Lockwood Financial Strategies, LLC is independent of Parkland Securities, LLC and SPC 


Securities offered through Parkland Securities, LLC, member FINRA/SIPC.