No. of Recommendations: 2
Au contriare! When you buy an annuity, they base the payout on some interest rate. Now, they are not doing this out of the goodness of their hearts. They charge a fee for their services, same as for any other service, so your interest rate is reduced by that fee.

By that rationale, a CD has a "fee."

The "fee" is not relevant. Only the interest rate is relevant.

If company A makes 7% on immediate annuity but gives you 4%, then the relevant "fee" is 3%. If company B makes 6% on the annuity but gives you 3.5%, the "fee" is 2.5% but you get a lower interest rate.

If that was a CD, would you buy the 4% CD or the 3.5% CD? Does it matter that the "fee" is lower on company B? Absolutely not - and there is no way that you will even know what that "fee" is. Each bank and insurance company will have different profit margins so where BoA might breakeven at 5.5% on their CDs, Chase might breakeven at 5.65%. If they both offer CDs at 5%, the "fee" difference for Chase doesn't hurt your 5%.

Good article in Fortune a few weeks ago on the shrinking margins BoA now makes on their CDs (they have higher expenses than some of their competitors).
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