Bank CDs: Fully guaranteed by the bank and insured up to $100,000 per title of account by the FDIC.
Lifetime Income:
Annuities: Several options available.
Bank CDs: No options available.
CD vs. Annuities, important key differences. Details are provided below.
| | Fixed Annuity | Bank CD |
| Safety of Principal | | |
| Tax Benefits | | |
| Minimum Interest Guarantee | | |
| Interest Rate | Fixed | Fixed |
| Early Withdrawal Fees or Charges | Possibly | |
| Lifetime Income | | |
| Taxable Impact on Social Security Benefits | | |
| Principal Liquidity without Charges | | |
| Probate Asset | | |
| Waiver of Surrender or Withdrawal Charge | | |
CD and the IRS
Certificates of Deposit (CDs)
If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID.
This also applies to similar deposit arrangements with banks, building and loan associations, etc., including:
Time deposits,
Bonus plans,
Savings certificates,
Deferred income certificates,
Bonus savings certificates, and
Growth savings certificates.
Bearer CDs. CDs issued after 1982 generally must be in registered form. Bearer CDs are CDs that are not in registered form. They are not issued in the depositor's name and are transferable from one individual to another.
Banks must provide the IRS and the person redeeming a bearer CD with a Form 1099-INT.
Time deposit open account arrangement. This is an arrangement with a fixed maturity date in which you make deposits on a schedule arranged between you and your bank. But there is no actual or constructive receipt of interest until the fixed maturity date is reached. For instance, you and your bank enter into an arrangement under which you agree to deposit $100 each month for a period of 5 years. Interest will be compounded twice a year at 7½%, but payable only at the end of the 5-year period. You must include a part of the interest in your income as OID each year. Each year the bank must give you a Form 1099-OID to show you the amount you must include in your income for the year.
Redemption before maturity: If, before the maturity date, you redeem a deferred interest account for less than its stated redemption price at maturity, you can deduct the amount of OID that you previously included in income but did not receive.
Renewable certificates: If you renew a CD at maturity, it is treated as a redemption and a purchase of a new certificate. This is true regardless of the terms of renewal.
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There is a surrender charge imposed generally during the first years that you own a contract. Withdrawals prior to age 59-1/2 may result in a 10% penalty, in additional to any ordinary income tax. The guarantee of the annuity is backed by the financial strength of the underlying insurance company. Investment sub-account value will fluctuate with changes in market conditions.