Online banking generally advertises the highest interest rates on jumbo certificates of deposit (CD) i.e., $100,000 or more. Today, the five-year, jumbo CD rate is around 2.35 percent.(1) While that interest rate may look like the only game in town, these banks may not be in your town. Online banks — virtual institutions without the brick and mortar experience — offer many of the best rates. But even in the 21st century, where we shop online, many conservative savers just can’t make the virtual leap to online banks. Some still need the high-touch interaction of a real live
You can forget about money markets because their interest rates are not worth thinking about. After you burn your gas for the trip to the bank, spend the time setting up the account and pay ordinary income tax on the earnings, you may have lost money in the overall transaction. Speaking of paying ordinary income taxes, why should you pay taxes on interest earnings you’re not using? Enter tax-deferred annuities.(2) The word deferral doesn’t mean tax-free, and it doesn’t mean tax-exempt. It simply means delaying taxes on your interest earned until you use it. In the long haul, tax deferral may yield its own benefit, besides a better interest rate. Currently, a five-year jumbo annuity rate is around 3 percent. Keep in mind a jumbo annuity may require more than $100,000. Conservative savers and shell-shocked investors who desire to park a portion of their portfolio for the next five years may want to consider their suitability for tax-deferred annuities. If you’re contemplating the purchase of an annuity, factor in the liquidity from other funds during the five-year annuity contract because they impose penalties for early withdrawals. Insurance companies manufacture tax-deferred annuities, so it’s important to have a conversation with your financial advisor regarding the financial strength of the insurance company issuing the annuity.
1. Interest rates can change; so confirm the published rate before purchasing an interest rate-crediting product.
2. Tax-deferred annuities are not insured by the FDIC or any government agency. It’s important to have your financial advisor review the balance sheet and ratings of the insurance company before you purchase an annuity.
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Syndicated financial columnist Steve Savant hosts the weekly video talk show for consumers entitled, Right on the Money and anchors the weekend news update On the Money News.
Steve is also the host of the daily producer show, Thought Leaders. Steve is of the top online author and videographer of... More