With the stock exchange in steep decline, people are trying to find safe places to take a position their savings. Many banks and investment companies are pushing annuities. Annuities offer a better rate of interest than CD's, but are they safe?
You could view an annuity as a tax deferred CD. you do not pay taxes on the interest until you begin drawing from the annuity. But there are some important differences between an annuity and a CD.
An annuity may be a product offered by an insurance firm . With giant corporations like Enron, Kmart, Worldcom, and United Airlines going bankrupt, are you able to guarantee that the insurance firm won't fold, leaving you with nothing? Insurance companies are insured by re-insurers, like General Re. But it seems regardless of how large a corporation is, you cannot make certain it won't fold. The bankruptcy of an outsized insurance firm might cause the re-insurer to collapse along side it.
Bank CD's are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $100,000 per bank. The FDIC may be a branch of the U.S. Government, who, as you recognize , are the people that print the cash . If they are going bankrupt, we'll have more to stress about than simply losing our savings!
A new sort of annuity called a charitable gift annuity has come on the market recently. These are issued by charity organizations. You give your money to the charity, you receive a tax break , and in exchange the charity promises you a hard and fast payment for all times . Unfortunately, this scheme has become a mode of operation for con artists.
The charitable gift annuity has been added to top ten scam list of the North American Securities Administrators Association. They explain that charitable gift annuities are subject to virtually no federal regulation. Here in Arizona, 430 investors lost their savings during a ponzi scheme travel by the Mid-America Foundation Inc.
Banks and investment companies hawking annuities promote the upper than CD interest rates, but they fail to reveal the hidden fees and high early withdrawal penalties. If you would like to access your annuity before age 59½, you'll be subject to a ten percent penalty.
With the recent bankruptcies, and discovery that a lot of giant corporations are cooking their books for years, I feel it is best to play it safe. If you're keen on the joys of risk, or if you've got already purchased an annuity, I wish you luck. As Rogers said, "I am not as concerned about the return ON my money as i'm about the return OF my money".
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