I don't. To me, Danny Fisher is the Morningstar of fixed income annuities. If anyone in the country has a larger database, with more history, on fixed income annuities, I haven't heard of it. In the September issue of the Dallas-based Fisher Annuity Index, his monthly publication, he lists data on nearly 900 fixed income annuity contracts offered by more than a hundred insurance companies.
Mr. Fisher doesn't deal with variable annuities, the kind where mutual funds are wrapped in an insurance contract that provides tax deferral. Nor does he deal with immediate annuities, the kind where you give your principal to an insurance company in exchange for a guaranteed lifetime income. Instead, he deals exclusively with fixed income annuities, the ones that offer a tax-deferred yield supported by the general account of the issurance company. In that universe, a relatively new product resembling a bank CD is one of the highest yield offerings available.
Today, fixed income annuities may be the 'last chance' for secure investment yield. While the yield on the average one-year bank CD is now down to 1.49 percent, the yield on the average one-year CD-like fixed annuity is 3.29 percent.
Yes, you read that right: 3.29 percent.
That's more than twice as much as the average bank CD. Similarly, the average yield on 5-year CD-like fixed annuities is 4.09 percent. That's significantly better than the 3.45 percent yield on the average bank CD.
The comparison with Treasury yields is even more dramatic. Recently, for instance, 2-year Treasuries were yielding 1.90 percent while a 2-year maturity fixed rate annuity was yielding 3.09 percent. The yield advantage over Treasuries continues throughout the maturity range--- a 10-year Treasury yields 3.77 percent while a 10-year annuity yields 4.73 percent.
(One word of caution here: these yields are highly fluid and will be different by the time you read this. In addition, I'm citing averages. Some are higher, some lower. What you can count on is that annuity yields don't fall as fast as Treasury yields.)
If you haven't heard of a CD-like fixed annuity, don't feel badly. They're a relatively new development that is rapidly displacing traditional fixed rate annuities.
You won't miss the traditional kind too much. Some were good. Some weren't. In some, the marketing brochure and salesman offered a feast that the fine print turned into desiccated crumbs. The CD-like fixed annuity---which Mr. Fisher says started to take off in 1999--- is a simple product designed to function like a bank CD.
"The guarantee period matches the surrender penalty period," Mr. Fisher said during a recent visit to his office. "What you see is what you get. They run from a day (in maturity) up to 10 years--- but 90 percent of what we sell is 5-year contracts."
The interest is compounded daily like bank CDs, is tax-deferred until withdrawn (unlike a bank CD or Treasury obligation), and the contracts now offer the option of regular monthly checks. Basically, he says, the insurance industry has cut commissions and offered a more attractive deal.
A look at Mr. Fishers' database gives an indication of how quickly the new CD-like product is displacing the more uncertain, higher commission product. In 1997 only 32 of the 127 companies in his database offered CD type annuities. By early September only 102 companies were offering fixed annuities--- but 65 of them were offering CD-like contracts. Similarly, in 1997 only 21 percent of all fixed rate annuities were CD-like contracts. Since then the proportion has doubled to 41 percent.
I asked Mr. Fisher if there was anything more liquid than a 1-year contract.
Yes, he told me, several behave like money market accounts. While they don't offer check writing and may limit the number of withdrawals a year, you can deposit money in these accounts and make withdrawals at any time. The process, he told me, takes about two weeks. The accounts earn at a 3 percent annual rate.
|CD-like Annuities vs. Bank CDs and Treasuries|
|This table compares recent yields. The average CD like fixed annuity currently provides a higher yield than the average bank CD or comparable Treasury obligation at all levels of maturity.|
|Maturity||Top Yield Banks||Avg. Bank CD||Treasury||Avg. CD-like Annuity|
|Sources: Bloomberg, Banxquote, Fisher Annuity Index|