Baby Boomers Flock To CD-Like Annuities

The highest interest rate on your cash right now might be coming from an insurance company, not a bank.

- ANNE TERGESEN

Insurers create fixed-rate deferred annuities, which resemble certificates of deposit, but offer higher yields on average thanks to the broad portfolio of investments insurance companies hold. They allow the buyer to defer tax on earnings.

Brokerages, banks and annuity agents sell them. At Fidelity Investments, the average interest rate on a three-year fixed-rate deferred annuity is 4.67%, assuming a purchase of $100,000 or more. That compares with 4.05% for the average three-year CD at Fidelity.

Business in these annuities is booming. Helping drive interest is the Federal Reserve's rate increases beginning in 2022, which lifted the rates on these long-overlooked products, said Bryan Hodgens, senior vice president and head of research at Limra, a research firm funded by the life-insurance industry.

Baby boomers have been among the biggest buyers as they have shifted money into more conservative investments.

The Fed cut rates for the third time this year at its policy meeting Wednesday. But sales, according to Limra, have been strong.

Fixed-rate deferred annuities have been the top-selling category of annuities this year, totaling $124 billion in the first nine months, up 17% over the same period last year, according to Limra.

Like CDs, but different