Tuesday, June 1, 2010

HB Magazine Summer Feature: CD Maturing? Tired of Low Interest Rates? By Ken Earwood

Bank CD rates are at all time lows. Most of my clients are tired of receiving such low rates. This is why your bank is not eager to call and notify you that your CD is maturing. Did you know there are other options for CD owners like yourself. These other options are currently paying on average 3-4% as a fixed guaranteed rate. They are safe, principled guaranteed, and have more liquidity than a typical CD. Sometimes people put funds into CDs instead of fixed annuities because they think their money is more liquid in the bank’s product. But have you ever thought about what happens when your CD is ready to mature? Most banks will send a notice in the mail giving you five to seven days to decide what to do with your CD. If you don’t move quickly, they’ll roll your money into a new CD, sometimes at a lower interest rate, and the withdraw penalty starts all over again.

Fixed CD-annuities have penalties for early surrender, too. But they don’t continually punish you for the privilege of holding your money. Once an annuity’s surrender penalty period is over, it is never re-established. And, unlike CDs that only allow “interest only” withdrawals, you can withdrawal 10% of the account value from an annuity each year without paying a surrender charge. Furthermore, some annuity companies will let you spread out the withdrawals on a monthly, quarterly, or semi-annual basis.

And since we’re talking about CDs, let’s spend a moment on taxes. The earnings on your CDs are taxable every year. And it doesn’t matter whether you have used the income or allowed it to accumulate in the account, you will still get a 1099 tax bill. On the other hand, the interest that you reinvest in your fixed CD annuity grows tax-deferred. In addition, the IRS will give you a tax break by not requiring you to include tax-deferred earnings in the provisional income calculations against your Social Security benefits. This could lead to more tax savings.

Don’t wait for that notice to come in the mail. Before your next CDs matures, call to set an appointment so we can meet and discuss how a fixed CD-annuity can possibly offer the liquidity you may need, earn a higher interest rate, provide a source of income, and save you money on taxes.

Ken Earwood is a professional financial advisor with more than 17 years of experience serving clients in the financial service industry. For free information covering the topic in the article above or if your would like to review your current retirement investment plan, please contact his office located at 16531 Bolsa Chica St. Ste. 304 Huntington Beach, Ca 92649. CA License #: OC44710. E-mail: kearwood@socal.rr.com. Phone: 800-250-3029, ext. 2#

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