Definition of "Annuity, cd"

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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