Dedicated to Deposits: Deals, Data, and Discussion

Annuity Advice from The Mole and High Rate CDs Advertised in Newspapers


The Money Magazine's undercover financial planner, The Mole, was asked by one of his readers about a fixed annuity being marketed at a presentation to senior citizens. The Mole's answer was to "Steer clear of this annuity salesman, as he is preying on your emotions and selling some righteously nasty stuff." The Mole describes how they play on your emotions and why the annuities are such bad deals.

Some of his advice was to "manage any anxiety you might have about financial security by keeping your safe money safe. Don't settle for an average-paying CD, however." I'm happy that this blog was one of the resources he mentioned for finding the best CD rates from FDIC banks and NCUA credit unions. For other resources, check out my finding-the-best-deals post.

Other places you may come across annuities are from financial services companies that provide CD locator services. When you see high rate CDs advertised in the newspapers, but the ad doesn't list the bank and it requires you to call to make an appointment, there's a good chance that the ad is from this type of financial service company. The CD is probably legitimate. The company typically acts as a middle man with a bank. However, they sometimes add in their own money which when added to the interest from the CD will result in the advertised high yield. This extra money is similar to the bonuses given out by timeshare salesmen. The financial service company hopes that the relationship they build with you will lead you into annuities or other products where they will earn commissions.

So heed the advice of The Mole, "always be on the lookout for anyone pitching a financial product using scare tactics. Never buy any financial product on the spot."

Thanks to the reader who emailed me news of this Money Magazine article.

Related Posts

Comments
6 comments.
Comment #1 by jim (anonymous) posted on
jim
Congrats on the mention! You do great work here so it's wonderful to see you get some recognition for it.

1
Comment #2 by annunity (anonymous) posted on
annunity
Thanks for very useful information.

1
Comment #3 by Index Annuity (anonymous) posted on
Index Annuity
I really enjoyed this post and looking forward to more updates for make it more effective.

1
Comment #4 by Tom (anonymous) posted on
Tom
The additional annual growth from tax deferral in a deferred annuity account, compared to a stock or bond index mutual fund that is outside an annuity account, is less than 0.2% (see cash flow projection on annuityevaluator.com).  An immediate annuity that pays you a stream of periodic payments has no tax-deferred advantage over a stock or bond index mutual fund that is outside an annuity account.  An index mutual fund that is outside an annuity account generates few short-term capital gains and, therefore, is mostly taxed at a low long-term capital gains tax rate, compared to annuity income which is taxed at the higher ordinary tax rate.  Some of the annuity income is excluded from taxes, but the higher tax rate offsets the benefit of the exclusion.

1
Comment #5 by Eric Eddler (anonymous) posted on
Eric Eddler
These people, or as we're refferring to them, "moles", sound like awful human beings. They prey on the elderly and push them into nasty contracts they don't need? Thats pretty low. It just shows how important it is to make sure your signing into a deal you actually need. This reminds me of a couple of friends who who backed out of an annuity through a cash out annuity option when they didn't need to. I showed them an article on this too late. -Eric

1