What is an annuity certificate?
The anality certificate is a deposit bank that provides a fixed rate of return throughout life. It is similar to a deposit certificate, except that the account holder must either download the funds after maturing or transfer them to another annuity. The characteristics of the annuity certificates include interest deferred and maintaining the original amount of deposit. Financial institutions can offer an annuity certificate as an investment option for individuals who want a guaranteed return. The interest rate or return that the annuity earns is the same until it reaches the maturity data. This may take five, 10, 15 or 30 years after the initial contribution to an adult investment. If the investment has a 10 -year due date and interest rate of 5 percent, the initial $ 100 will continue to earn 5 % return every year, regardless of market changes. The same concept is seen in a fixed -rate mortgage where the debtor pays exactly the same interest rate on his outstanding principal balance until the loan is paidin full. Annuity investment is also similar to planning for future income after retirement, such as an individual pension plan (IRA) or 401 (K).
When an annuity certificate matures, the investor must decide whether he wants to withdraw the principal balance and obtain interest or transfer funds to the annuity to another financial investment. If, for some reason, the owner of the investment decides to select or earn his funds, he has to pay taxes on any interest that the investment has received. In addition, the owner can be charged a penalty fee if the selection occurs with a certain age. If the funds are not withdrawn or converted, the surrender fee may be imposed.
Investors who want to be able to count on specific future income can find the annuity as a suitable financial product. Due to their firm return on individuals, individuals can calculate exactlyhow much they earn to a certain time. The product also provides a certain degree of protection for sharp market decreases. One of the disadvantages of the product is that it does not use any positive profits on the interest rate market.