How Savers Can Earn More on Their Money, and Do It Safely
With interest rates perpetually doing the limbo (how low can they go?), here are three different types of fixed annuities that can be good alternatives to CDs, Treasuries and money market accounts.

Interest rates on most safe investments, such as savings accounts, bank CDs, money market accounts and Treasury bonds, are super low these days. When you factor in even a tiny bit of inflation, you’re losing money in them, even before you pay income tax.
What are the best alternatives for people who want to get a higher guaranteed rate of interest?
It’s a big issue for people in their late 50s and older who don’t want to risk too much in the stock market and for retirees who rely on savings for income. Here are three good alternatives, all classified as fixed annuities, but different from one another.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Fixed-rate annuities pay higher guaranteed rates
Also called a multi-year guaranteed annuity, a fixed-rate annuity acts a lot like a bank CD. Both guarantee a rate of interest for a set period. But there are some key differences.
One is that fixed-rate annuities pay much higher rates than comparable CDs today. As of early February 2021, you can earn up to 3.00% a year on a five-year fixed-rate annuity and up to 2.40% on a three-year contract, according to AnnuityAdvantage’s online rate database. Meanwhile, the top rate for a five-year CD is 1.00% and 0.85% for a three-year CD, according to Bankrate.
Annuity rates have held up remarkably well so far, but they are declining. If you’re interested in a fixed annuity, it could pay to take action sooner rather than later as you’ll probably get a better rate today than next month or beyond.
Another difference between annuities and savings accounts or Treasuries is that with an annuity, the interest you earn is tax-deferred until you withdraw it. You can either receive the interest annually and pay tax or let it compound in the annuity and thus defer taxes.
There’s one major caveat. If you withdraw money from an annuity of any type before age 59½, you’ll normally owe the IRS a 10% penalty on the interest earnings you’ve withdrawn, plus regular income tax on it. So, if you’re much younger than 59½, don’t buy an annuity unless you’re sure you won’t need to take out money before that age.
Another thing to keep in mind is that annuities of all types are guaranteed by the issuing insurance company. They are not FDIC insured like bank CDs and savings accounts. State annuity guaranty associations do provide a solid extra level of protection, however.
Fixed annuities are suitable for both nonqualified accounts (savings that would otherwise be taxable) and in qualified retirement plans, such as IRAs, Roth IRAs, and 401(k) and 403(b) plans.
Fixed indexed annuities offer potentially higher returns over the long term
Indexed annuities credit interest based on the growth of a market index, such as the S&P 500. The interest rate thus fluctuates annually. In up years, you’ll profit (keeping in mind that the size of your gains could be subject to caps and limits). In down years, you’ll lose nothing, but you won’t earn anything either.
So, for example, in year one you might earn 9%, 0% in year two, 4% in year three, and so on. If you’re OK with the risk of earning nothing some years, in the long run, you’ll likely earn more interest than you’d get with a fixed-rate annuity.
Indexed annuities are good for people who want to save for the long term and limit their risk without precluding growth. They’re not typically suited for people who need steady income right away to cover living expenses. Think of them as a distinct third class in an asset-allocation plan: fixed-income (CDs, bonds and other fixed annuities); equities (stocks and stock funds); and indexed annuities.
Because there are different crediting methodologies and caps, it takes some research to compare and determine which indexed annuity is best suited for you. Work with an annuity specialist who has the necessary resources and training to assist you in this process.
Income annuities produce much more guaranteed income
If you’re looking for the most guaranteed income, here’s an alternative you may not have thought of: an income annuity. Unlike fixed-rate or fixed indexed annuities, once purchased income annuities have no accumulation value, so they don’t pay a stated rate of interest. You pay a lump sum or a series of deposits to the insurer, which guarantees a stream of income.
You choose how long the payments last — for example, you could select 10 years. Most people, however, choose a lifetime annuity that will pay you (and optionally, your spouse) guaranteed monthly income no matter how long you live.
Income annuities produce more income because each income payment is made up of both taxable interest and tax-free return of principal (your own money coming back to you). It’s a bit like the flip side of a mortgage, where each payment you make includes principal and interest. A mortgage gets paid off eventually. However, lifetime income annuities keep on paying the same amount, even after the insurer has repaid your entire principal.
Lifetime income annuities serve as longevity insurance. They protect you against the risk of running out of money should you live into your 90s or beyond.
Income annuity payments come in 2 types: deferred or immediate – your choice
A deferred income annuity, which pays out starting on a future date that you choose, lets your money grow tax-deferred until you start receiving income. If you can afford to wait, it’s usually the better choice because the deferred income payments will be larger than immediate payments.
If you need substantial income soon, an immediate annuity can be a great solution. Typically, you’ll start receiving monthly payments within about a month of purchase. Many insurers will let you delay the start by up to a year if you like.
So, to sum things up, fixed-rate, indexed and income annuities all let you earn more on your money, safely, than bank CDs, Treasuries or savings accounts. They also offer tax deferral, another big plus. If you won’t need to tap your money before age 59½, all these different types of annuities are worth considering.
A free quote comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling 800-239-0356.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Retirement-income expert Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed and immediate-income annuities. Interest rates from dozens of insurers are constantly updated on its website. He launched the AnnuityAdvantage website in 1999 to help people looking for their best options in principal-protected annuities. More information is available from the Medford, Ore., based company at www.annuityadvantage.com or (800) 239-0356.
-
Could a Golden Visa Be Your Ticket to Retiring Abroad?
Trump and DOGE are weighing a U.S. "Gold Card" that would let the wealthy emigrate to the U.S. for a fee. But golden visas have been around for years worldwide. Here's how they work.
-
Running Out of Money in Retirement: Nine Steps to Reduce the Risk
Quit worrying about money and enjoy a carefree retirement. Sounds good, right? Well, if you follow these nine steps from a financial adviser, you could be on your way to that goal.
-
Running Out of Money in Retirement: Nine Steps to Reduce the Risk
Quit worrying about money and enjoy a carefree retirement. Sounds good, right? Well, if you follow these nine steps from a financial adviser, you could be on your way to that goal.
-
I'm a Financial Planner: Here Are Five Lesser-Known Ways to Avoid Estate Tax
The clock is ticking on the estate and gift tax provisions in the Tax Cuts and Jobs Act, so the sooner you act on removing assets from your estate, the better.
-
Is a Silent Wealth Killer Stalking Your Retirement?
Poor tax planning can drain your retirement of tens or even hundreds of thousands. Stop the bleeding with a laser focus on tax efficiency.
-
Put Time on Your Side With This Simple Retirement Strategy
A financial professional recommends thinking in terms of three financial stages — active years, slower-paced years and later years — assigning each one a unique bucket of investments.
-
Five Opportunities if You're in the 2% Club in Retirement
If you're among the 2% of the population with both a pension and $1 million or more saved, you're in a unique yet complex position as you approach retirement.
-
I'm an Insurance Expert: This Is How You Get the Right Insurance Coverage at the Right Price
First, you have to know what you want and ask the right questions of the right professional. This insurance pro explains exactly how to do that.
-
Four Tips for Mastering a Financial Security Mindset
This financial professional's mom helped him learn that financial security is more than making money — it's about cultivating a mindset that will help you stick to an investment plan even when times get tough.
-
Lessons to Be Learned From a $1 Billion Divorce
An estate planning attorney notes that an oil executive’s billion-dollar divorce could have turned out very differently if the couple had a premarital agreement and the executive had used asset protection trusts.