Considering a Fixed Annuity for your maturing Certificate of Deposit? Not sure how they stack up against one another?

by Marylove Moy 26. April 2011

Recently, we sent out a Fixed Annuity (FA) mailer to our 18-month Certificate of Deposit (CD) customers. We did this in hopes of offering our customers an alternative option in the event that their Certificate of Deposit is nearing maturity.  With that being said, we thought there might be other folks out there (including those who received the mailer) that could be asking themselves, "What's the difference and more importantly, which one is the most beneficial for me?"

To answer this question, we went to our very own Marylove Moy, Program Director of 1st Mariner Financial Services, to see if she could shed some light on that matter. 

The Experienced Financial Advisor's Opinion.

Both (CDs) and (FAs) are considered savings vehicles, normally used to accumulate wealth: but there are key differences between the two options. 

Safety of Principal

Both are considered appropriate choices for the conservative investor. CDs are usually issued by banks and therefore offer the FDIC backing up to $250,000. Annuities, on the other hand, are issued by insurance companies; they are backed by the financial strength of the issuing company (regardless of dollar amount). Ratings agencies, such as S&P and Moody’s, provide critical information in assessing a company’s financial situation. 

Interest Rate

As a rule, CDs guarantee a rate of return for a period of time; many factors determine this rate. Fixed annuities can offer either a fixed rate for a predetermined contract term or a rate that adjusts periodically during the term. Annuities – unlike cds – offer a minimum floor interest rate that is guaranteed irrespective of market conditions. 

Tax Considerations

For those individuals concerned with minimizing taxes, a fixed annuity is an attractive option. Interest on a FA accrues on a tax-deferred basis; an investor is taxed on this interest only to the extent that it is withdrawn from the contract. This fact can – in the appropriate circumstance – reduce the taxes paid on an individual’s Social Security benefits.  On the other hand, the investor faces a 10% penalty on the interest withdrawn if he/she is under the age of 59 ½.  If you have tax related questions, please consult your tax advisor. 

Liquidity/Investment-term horizon

As a rule, a CD is the preferred option for those investors with a short term investment time frame. If an investor redeems a CD early, he/she is normally subject to penalties.

Fixed annuities usually offer the investor access to interest earned on the contract or a certain percentage of the contract value. It is critical for the investor to understand that interest withdrawn from an annuity contract is taxable at this point. Additionally, should the investor surrender the contract before its maturity date, surrender charges can apply (depending on the fixed annuity type, these surrender charges may or may not invade the contract principal)

Estate Considerations

Proceeds from a fixed annuity bypass the probate process; that is to say they go directly to the beneficiary once the contract is surrendered with proper documentation. The proceeds are not delayed by the court processing of the estate.


  

 

 

Program Director
1st Mariner Financial Services 

 

Still confused?

No worries.  Marylove and her team of Financial Advisors would be happy to help answer any questions or concerns that you still have.  Feel free to contact our Financial Services Department or call us at 410-558-4200. 

Please contact your financial advisor. Securities offered by 1st Mariner Financial Services, and Investment Advisors are registered with UVEST Financial Services, member FINRA. UVEST is independent of any financial institution. Securities (1) are not deposits of this institution; (2) are not insured or guaranteed by the FDIC or any other governmental agency; (3) are not obligations of, or guaranteed by, any financial institution; and (4) involve investment risks, including the potential for fluctations in investment return and the potential loss of principal.

 

Operation: Unclutter 2011 - and keep your identity while you are at it.

by Erica Starr 18. April 2011

With today being April 18th, a.k.a 2011's tax deadline, we thought it would be a good idea to celebrate Earth Day (April 22nd ) by teaming up with the folks at Shred-It to help our community “shred” those unwanted, clutter-enabling, not essential to your existence documents that you may have acquired over the years. Tax returns from last decade, useless; old credit card offers, it’s probably time for them to go; expired passports, bank cards, passports, visas, and identification cards; shred, shred shred! It’s an easy way to get rid of those unnecessary documents by recycling the shredded material, which is good for both you and the environment.

The US Federal Trade Commission received 250,854 complaints about identity theft during 2010.  In many cases, identity theft victims are unaware they are a target until they see the havoc wreaked on their credit report. While much of the fraud takes place online, most of the identity theft takes place in offline areas. While the tech-savvy thieves continue to unite, your trash can should NOT be the scene of the crime. Entering your information into a phony website or swiping your card at a skimmed gas pump (skimmer: small electronic devices that gather and store all credit or ATM card data) can happen even to the most cautious of consumers; however, conveniently leaving your social security number in an public unsecure container (i.e., your trash can) is like serving your identity up on a silver platter.

In other words, when you throw something in the trash, it immediately becomes available to anyone who’s willing to overlook the enticing smells of last night’s dinner.

What to shred and what NOT to shred?

Now that you know WHY you should shred documents, the question now becomes, what to shred and what NOT to shred. At a high level, you should generally shred anything that has a signature, account number, social security number, or medical or legal information. Check out this link for a full list of documents that can be tossed (a.k.a shredded) and those that you might want to hang onto a little longer.

The Scene of the Solution: 1st Mariner Bank’s Cockeysville and Dundalk Branches

The Shred-It Team will be set up from 9 a.m. to 1:00 p.m on Saturday, April 23rd at both our Cockeysville and Dundalk branches. This event is open to both 1st Mariner Bank customers and non-customers; however, there is a limit of five boxes per person.. We strongly encourage everyone and anyone to participate in this FREE, earth-friendly opportunity to de-clutter your lives and help Maryland AND your file cabinets to become as spacious, eco-friendly and green as they possibly can be.

Maryland's Economy: There is Still Plenty of Reason for Concern, but the Reasons Have Changed

by Anirban Basu 15. April 2011

Focus Shifts from Growth to Inflation

Economy Now Enjoys Self-Sustaining Momentum

Coming into 2011, economists remained largely fixated on the inadequacy of demand for labor, housing, commercial real estate and other aspects of economic life. Economists have been busily pouring over reams of data regarding senior bank loan officer attitudes, consumer credit availability and other indicia of credit market thawing. The conventional wisdom has been that until banks begin lending more aggressively, the U.S. economy will continue to be lackluster and the recovery that began in mid-2009 will remain fragile.

With the first quarter now over, many of the principal economic concerns coming into the year have been largely addressed. For instance, demand is building. Retail sales are up 9.5 percent on a year-over-year basis through February. Overall consumer spending is up 2.5 percent with the purchase of durable goods up 11.9 percent on an inflation-adjusted basis. Adjusted for inflation, private nonresidential fixed investment was up 1.9 during the fourth quarter and 10.6 percent year-over-year.

Moody’s Economy.com presently predicts that consumption will expand 3.3 percent in 2011, with motor vehicle sales rising 13.6 percent. Fixed investment is predicted to rise nearly 9.6 percent this year, with investment in equipment up 10.3 percent.

Foreign demand has also been strong. Despite a sea of troubles ranging from Portugal to Japan and engulfing Tunisia, Egypt, Libya, Greece, Yemen and Pakistan, the world increasingly looks to America for output. That is very encouraging. Since January 2010, U.S. exports are up 6.9 percent on a seasonally adjusted basis and 18.9 percent on a not seasonally adjusted basis, with sales to China, India and Brazil up 17.3 percent, 42.2 percent and 7.4 percent, respectively.

The accompanying increase in production has led to the emergence of a new trend in America: employment growth in manufacturing. For six months running, the number of manufacturing jobs in America is up on a year-over-year basis, with March 2011 industry employment totals 196,000 jobs above the corresponding month one year prior.

Employment growth has generally been accelerating in America. Nonfarm payroll employment increased by 216,000 in March according to the Bureau of Labor Statistics (BLS) and the nation’s unemployment ticked down to 8.8 percent. BLS observed job gains professional and business services, health care, leisure and hospitality and mining. However, the number of long-term unemployed (those jobless for 27 weeks or more) totaled 6.1 million in March and their share of the unemployed increased from 43.9 percent to 45.5 percent over the course of the month.

All of this positive economic news has allowed equity markets to bounce higher. At the beginning of the year, the Dow Jones Industrial Average stood at 11,577. By the end of March, the Index stood at 12,320 and as of this writing has risen above 12,400. The S&P 500 is up 6.0 percent since the beginning of the year. That’s simply remarkable in light of the tragedies in Japan, sovereign debt issues in Europe, civil war in Libya and oil prices that are now above $110 a barrel.

Inflationary Pressures Have Been Building

For months, we have been suggesting that it is still too soon to tell whether or not inflation will become problematic. Indeed, recent core inflation data (all components except food and energy) indicate that inflation remains mild. Through February, core inflation was running at a 0.2 percent monthly rate and 1.1 percent annual rate in America despite increases in medical care expenses (up 0.4% for the month and 2.9 percent year-over-year).

That said, inflationary buzzards have begun to circle. There are a number of factors that collectively conspire to support the emerging view that at some point later this year or in 2012 the U.S. Federal Reserve will begin to find it necessary to constrain inflationary pressures by reducing money supply growth and increasing short-term rates.

While much of the recent focus has been upon food and energy prices, commodity prices generally have been marching higher. For instance, steel and iron producer prices are up 16.8 percent through February on a year-over-year basis. Gold now stands at $1,471 a troy ounce, up 27.9 percent from a year ago. Cotton prices recently set a record at $2.11 a pound. Certain non-commodity prices have also been drifting higher, including airline fares, which are up 12.3 percent year-over-year through February.

What’s more, import prices are also up with a growing number of nations reporting widening inflationary issues. In India, inflation is up 18.9 percent year-to-date through February. In China, the corresponding statistic is 10.0 percent. In Mexico, consumer prices are up 10.8 percent through March. Presumably, this inflation will continue to be exported to America in the form of higher priced clothing, food and household items.

Thus far, many prices have been constrained due to productivity gains and the inability of producers to pass along input price increases (including those associated with oil prices) to consumers. But with the economy steadily improving, consumers are likely to face rising prices for many goods and services, and that will ultimately prompt the Federal Reserve to begin to meaningfully chip away at the massive monetary accommodation it has been providing to the economy in the wake of the financial crisis that gripped us in September of 2008 and the accompanying Great Recession.

Implications for Investors

It has been wonderful to be exposed to equities over the past two years. The Dow Jones Industrial Average is up roughly 92 percent since its March 9, 2009 intraday low. The simple laws of gravity suggest that at some point, some of these gains will be returned. But the specter of inflation is now becoming more apparent, with the primary implication being that the current interest rate environment is about to shift. That would impact the multiple on corporate earnings and therefore stock prices.

Emerging inflationary pressures render bond investing particularly challenging. Even in the absence of inflationary pressures, bond market fluctuations have been unusually difficult to predict. Sovereign and municipal debt issues have unnerved many investors and yields have been drifting higher on various forms of debt. As of this writing, the yield on the 10-year U.S. Treasury stands at 3.59 percent, up 41.3 percent from early November 2010.

On top of that, commodities have enjoyed a remarkable run as well. It is unlikely that this can continue in conjunction with an ongoing equity market rally. To put it in the simplest terms, something has got to give. Therefore, while underlying positive economic momentum implies that substantial exposure to equities remains sensible as we approach mid-year 2011, investors should be thinking about quick response strategies to a potential market correction that could be triggered by bad news regarding core inflation.

Anirban Basu is Chairman & CEO of Sage Policy Group, Inc., an economic and policy consulting firm in Baltimore, Maryland. Mr. Basu is one of the Mid-Atlantic region’s most recognizable economists, in part because of his consulting work on behalf of numerous clients, including prominent developers, bankers, brokerage houses, energy suppliers and law firms. On behalf of government agencies and non-profit organizations, Mr. Basu has written several high-profile economic development strategies, including co-authoring Baltimore City’s economic growth strategy. His opinions do not necessarily reflect the opinions and beliefs of 1st Mariner Bank.



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