3 Year Guarantee on a 5 Year Annuity?

Q: I have a cd that has matured and my bank (National City) is suggesting that it would be best if I put my money into a no-cost annuity for 5 years. They tell me that the rate of 4.95% is guaranteed for 3 years.

Is this a farce or is this for real? They tell me that I can take out as much as 15% per year but I did not know to ask if there was a penalty. What else might I need to know?

A: Most likely the surrender penalties last for 5 years, but the rate only for 3 years. So you don’t know what the rate will be the last two years.

Would you buy a 5-year CD where you only knew the rate for 3 years? Don’t believe the no-cost, the bank receives a commission from the insurance company and thus has a conflict of interest in recommending it.

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