Call any bank and ask what the CD rates are and chances are you will not like the answer. Rates are dropping and the days of a 5% CD are gone. According to the Federal Reserve rates will continue to drop. Analysts are predicting that CD rates may return to their 2003 lows of just over 1%.
Rates dropping this low are problematic. How problematic depends on why you invest in CDs. If you are simply a casual investor the stock market is still open to you, although conditions have not been much better there either.
If you are older and living on a fixed income this drop in rates can be devastating. Income has been supplemented by the interest income that a CD offers.
So what can you do now?
The answer is to buy annuities.
But wait, you exclaim. I’ve heard bad things about annuities and my cousin’s best friend lost a lot of money. Why would I invest in an annuity?
The trick with an annuity is to find the product that best meets your needs. Like so many financial products annuities come in many types and terms. Careful consideration should be made to address your time horizon, risk tolerance, and your overall investment portfolio and strategy. If you purchase the wrong product you could lose money.
Any financial advisor that does not take all of those considerations into account before advising that you purchase a particular annuity product is not doing you any favors.
If you have a long time horizon and at least a moderate risk tolerance a variable annuity may be right for you. Before agreeing to anything carefully read the details of the product and consider the associated fees.
If you are looking for a cut and dry product with very little risk a fixed annuity may be right for you. Again, consider the contract carefully, although fixed annuities generally have very few, if any, fees outside of an early withdraw penalty.
If you are in need of income an immediate annuity, fixed or variable, may be right for you. These will guarantee income for as long as you live, and in some cases even to your beneficiaries. In exchange you must surrender some or all control over your money.
Rates are dropping, but you still have many investment options. It may be time to buy annuities. Consider the annuity contract carefully and speak with a trusted financial advisor to determine if an annuity is right for you.