Is this investment too good to be true?
Dear Dr. Don,
Is it wise to invest $10,000 in a fixed annuity at a rate of 8 percent for a 10-year period? With this fixed annuity, the money cannot be taken out until after the 10-year time frame is up. Please let me know what you think.
-- Sonjia Serial
First, I'll take your question at face value. If you have $10,000 to invest and you're certain it won't be needed for at least 10 years, then a guaranteed return of 8 percent would be a great return for a fixed annuity.
Still, something doesn't sound right about this annuity, as you describe it. The promised return is more than twice as much as what I found for a fixed annuity with a 10-year rate guarantee. For example, the best rate I found for a 10-year annuity was 3.65 percent.
You've undoubtedly heard the saying, "If it sounds too good to be true, it probably is." Check out the A.M. Best rating of the insurance company backing the annuity. Also, be sure to read the contract thoroughly. If you're still not comfortable, I'd suggest you hire a fee-based financial planner to review the annuity contract before you sign any contract.
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