However, the Feds did intervene in what I was earning on my savings. Back in 2007 the interest paid on my bank savings averaged 4.1%. As the Federal Reserve Board intervened the average CD rate rather quickly dropped to 2% by the end of 2008, it fell to 1% by the middle of 2009 and today the average one-year CD rate is 0.3%. CD interest income has shrunk by over 90% in 5 years.
A fixed annuity can guarantee your income will increase in future years even if rates do not.
Every savings vehicle has been affected by yield shrinkage, but some offer more protection than others. Although current interest rates on fixed annuities have fallen just like other vehicles, fixed annuities guarantee that at least a minimum interest rate will always be earned, so money set aside to grow will continue to grow.
If the goal is income, fixed annuities offer a couple of ways to receive an income that will never go down and can even go up. One of these is through an income annuity that provides a set income for a specific number of years – or even for life. Another option that is rapidly growing in use is a lifetime withdrawal benefit that guarantees a minimum annual income and access to the cash value of the annuity. You can even find annuities where the income is guaranteed to increase each year even if interest rates do not.
I don’t think the era of shrinkage is over. When I went to the paint store last month the sign on top said “paint $15/gallon” but the paint can said it contained three and three quarter quarts. I wouldn’t be surprised if the way they eventually deal with the high price of gas is to say a gallon contain 3 quarts – and then brag about how the price is finally under $3 a “gallon”. However, in this steadily shrinking world there is one thing that won’t get smaller and that is the guarantee on your fixed annuity.