World Savings CD Rates - Beware of Annuities
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Posted by Kirk Lindstrom Aug 20, 2006 |
I have an account at World Savings and have liked the bank for many decades. It is a great bank for purchasing CDs with enough money to qualify for World's free checking with interest account, safe deposit box, notary public service and travelers checks.
We discuss the best rates for CD in our Get The Best CD Rate discussion forum.
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Beware their annuities!
World Savings will offer high "teaser rates" to get those who rate shop to come in with new money. Their recent 10 month, 6.0% CD was actually a money loser for them. It was a "loss leader" much like grocery stores will sell Coke or Pepsi below cost at Thanksgiving so you buy the rest of your food for the big celebration meal from them.
World's sales force, usually called "tellers," are trained to ask if you are interested in a better rate than advertised. If you are (who isn't?) then they ask you to speak to their "Atlas Representative."
This "Atlas representative" will offer you an annuity that pays a higher "teaser rate" for a few years, but you are locked with high back end fees and a much lower overall rate of return than if you simply bought Treasury Bonds at the TreasuryDirect.gov.
A recent annuity was paying 7.55% the first year, 5% the second but they only "guarantee" 3.0% as their minimum rate! If you wanted out when you figured out you were only getting 3%, then you had backed loads as high as 7% even after several years! You will also have to pay a 10% tax penalty since the interest you are earning is tax deferred. As far as I am concerned, these types of annuities are a sneaky way large insurance companies have locked people into annuity products, probably with large campaign contributions to both parties.
Finally, the commission they pay the "Atlas Representative" is very high... since this is a great deal for the bank... but not for the saver. I strongly recommend most people avoid all annuities completely and buy CDs and treasury bonds instead. If you have a high enough income that you really need to defer it, and all your IRAs are fully funded, then go to some of the low cost annuity places such as Fidelity and Vanguard.
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DISCLAIMER: Answers & my words are general in nature, are not meant as specific investment advice, and do not necessarily represent the opinion of anyone but Kirk. Individuals should consult with their own advisors for specific investment advice.