Are Your Clients’ CDs Pulling Their Weight?

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Certificates of deposit are a sure thing that let you rest easily at night. You park your money and collect the guaranteed taxable interest each year. No worries. No questions asked.

But, can you use the money elsewhere for better value with just as much, or more, certainty of results?

Consider the case of a 45-year-old male in preferred health, subject to 20% total income tax:
  • His current $100,000 CD pays 4% taxable income for an annual after-tax return of $3,200.
Can this client get a better return and still preserve his capital?
  • He uses the $100,000 to purchase a single-premium immediate annuity that pays $5,944 (a currently available rate of 5.94%) each year for life.  Since a portion of each payment is taxable, his annual after-tax return is $5,277.
  • To preserve his capital for heirs, he purchases a $100,000 level premium permanent policy guaranteed for his life with an annual premium of $994.
  • After the cost of insurance, his net annual after-tax disposable income is $4,283, $1,083 more than the return on his original CD.

Several factors will determine the attractiveness of this strategy, such as age, health and whether the client’s risk-reward profile will be inclined toward a plan with such favorable, but unfluctuating, guarantees.

Reach out to Tom Virkler, JD – Director of Advanced Markets, at 706-614-3796 or tom@cpsadvancedmarkets.com concerning your clients who would benefit from putting their CDs, or other fixed assets, to better use.