Definition of "Annuity, cd"

Stephen A. Raffaelli Jr. real estate agent
Stephen A. Raffaelli Jr., Real Estate Agent Berkshire Hathaway HomeServices PenFed Realty

Product that guarantees the initial interest rate for funds on deposit for the length of the maturity, whether it is for a period of 1, 3, 5, 10, or 15 years. At maturity, the policyholder has two choices:

  1. withdraw the funds without having to pay a surrender charge (it is important to note that taxes must be paid on the interest earned and there is a 10% penalty on the earnings if the policyholder is less than age 59/2);
  2. roll the funds over into another annuity for a limited number of years or a product of longer duration.
In contrast to certificates of deposit (CDs), interest earned through this annuity accumulates on a tax-deferred basis. This type of annuity provides liquidity, preserves principal, and stipulates a fixed rate of return.

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