Looking at a fixed annuity like the Choice product from Security Benefit may seem like an exercise in absurdity given the rates offered for locking-up cash for periods of 5-7 years.
2 percent over 7 years and 1.4 percent over 5 is somewhat eye-opening.
That is until these rates are put into perspective.
On a net basis, money market funds provide no yield whatsoever.
Bank savings account might provide 30-40 basis points if the deposit levels are substantial.
Given this yield landscape, 2 percent starts to look much more interesting. After all, 2 percent is 4-5 times what you would receive from a very high balance savings account.
Also, the savings account income would be taxed at your normal rate, so say goodbye to about half of that income.
So it all depends on putting these rates in context and looking at them on a comparative or relative basis rather than an absolute basis.
For those who say you would not have any access to funds with a fixed annuity, take a closer look at the actual contract as there is plenty of access to funds without incurring penalties.
