Mike Is Getting Double the Interest Thanks to Luke Hockaday
If you have any retirement savings sitting in the bank, odds are you’re not earning much interest on that money. That was the case for Mike, one of Luke Hockaday’s clients.
When all was said and done, Luke was able to double the interest Mike was earning on his savings while getting him access to a few new features.
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Mike’s 1.5% Certificate of Deposit (CD)
Mike had just over $120,000 in a certificate of deposit (CD), and it was earning 1.5%, which is actually a lot for a CD.
The national rate for a 5-year CD is under 0.40% (September 2020), and we gathered CD rates for 15 banks in Decatur, IL and they average to 0.67%.
So really, Mike had a really good rate for a CD. However, fixed annuity rates are almost always stronger than a CD, and Luke was able to earn Mike over 3% with a company called Equitable.
What About CD Penalties?
Most clients wait until their CD comes due to make any changes, because there are penalties for withdrawing your money early. Most of the time, that penalty is six months of earned interest.
What’s unique about Mike’s case is he didn’t actually wait for the CD to come due. We crunched the numbers and found that he would be money ahead if he transferred his $120,000 to the annuity right away.
He would lose the past six months of earned interest, but he made so much more interest in the fixed annuity that it turned out to be the right decision.
The word “penalty” scares a lot of people, but by doing the math, Mike actually made a really smart move.
Transitioning From a CD to a Fixed Annuity
The transition was easy for Mike, because he was used to a CD, and a multi-year guaranteed annuity is very similar. It’s the same idea – you have a guaranteed interest rate over a set amount of time. The rate won’t go up or down – you know what you’re going to get.
In fact, Mike got access to two additional features with the fixed annuity, which further sealed the deal.
Fixed Annuity Features
Fixed annuities are tax-deferred, meaning you only have to pay taxes when you withdraw your gains. CDs don’t have that feature, which makes fixed annuities even more desirable.
Read More: How Do Taxes on Annuities Work?
Mike also appreciated the 10% free withdrawal feature. He didn’t need access to these funds, but if he did get into a bind for any reason, he knew he’d be able to access 10% of his account.
Mike chose a 5-year contract, which is the most common contract length. The interest rates on 5-year contracts are typically the most competitive.
How Much Interest Are You Passing Up?
If you have money in a CD, shop your rate around and see if you can get a higher interest rate with an insurance company instead of a bank.
Fixed annuities are perfect for seniors and people looking for a guaranteed interest rate with no risk. It’s a no brainer, especially if you’re getting less than 3%.
About Luke Hockaday
Luke Hockaday has been offering senior market insurance products at Sams/Hockaday & Associates since 2011. Luke offers a full suite of products, from annuities to Medicare Supplements to cancer plans.
“Luke always keeps my needs first and foremost, and I never feel like he's rushed. He takes as much time as needed. He's also friendly and fun.” –N.W.
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