After years of interest rate increases by the Federal Reserve, yields to savers have rising sharply. Now you may be able to get 5 percent or more on a bank account.
The catch? Bank accounts are taxable. If you get 5 percent on a CD, you’d clear only 3-3.5 percent, after income tax.
One alternative is to put your money into a fixed annuity, offered by various financial institutions. The interest you earn on a fixed annuity won’t be taxed until withdrawal. Thus, fixed annuities may be especially appealing if you are in a lower tax bracket after you retire.
In a traditional fixed annuity, you lock in a certain yield for a period of years. You might receive 4-4.5 percent today, tax-deferred, on an annuity with a five-year rate guarantee. As is the case with a bank CD, the interest rate will be re-set to recognize prevailing market conditions, once the five years are up.
