Maximize Your Clients’ Tax Refunds with High-Yield Alternatives to CDs

Maximize Your Clients’ Tax Refunds with High-Yield Alternatives to CDs

April is quickly approaching and is a crucial time of year when many clients receive tax refunds and must decide how to use them. For financial professionals, this presents a valuable opportunity to help clients make informed decisions that will maximize their returns. While many individuals default to depositing their refunds into certificates of deposit (CDs), financial advisors can introduce an alternative that often yields better returns—multi-year guaranteed annuities (MYGAs).

With interest rates fluctuating and inflation eroding purchasing power, it’s important to explore all options to ensure clients’ money is working as hard as possible. By guiding them toward MYGAs, financial professionals can provide a solution that not only offers security but also potentially higher earnings than traditional CDs.

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Why CDs Might Not Be the Best Choice

CDs have long been a preferred option for conservative investors seeking a low-risk place to store their savings. They provide a guaranteed rate of return, and funds are insured by the FDIC up to $250,000 per depositor. However, CDs also come with limitations that can make them less attractive in today’s financial climate:

• Lower Returns: Interest rates on CDs are often lower than alternative options, and when adjusted for inflation, real returns can be minimal or even negative.
• Annual Taxation on Interest: The interest earned on CDs is taxed annually, reducing overall earnings.
• Limited Liquidity: Early withdrawals typically incur penalties, making funds less accessible if unexpected expenses arise.

Given these drawbacks, many clients may be open to considering other investment vehicles that offer the same stability with better financial benefits.

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The Case for MYGAs

A multi-year guaranteed annuity (MYGA) is a fixed annuity that guarantees a set interest rate for a specified term, similar to a CD but with notable advantages. Here’s why MYGAs can be an excellent alternative:

• Higher Guaranteed Rates: Many MYGAs offer significantly higher interest rates than CDs, allowing clients to grow their funds more effectively over time. This is particularly appealing in the current environment, where CD rates remain relatively low.
• Tax-Deferred Growth: Unlike CDs, where interest is taxed annually, MYGAs allow earnings to grow tax-deferred. Clients only pay taxes when they withdraw their money, which can enhance overall returns—especially for those looking to delay taxation until retirement, when they may be in a lower tax bracket.
• No Annual Fees: MYGAs generally do not have annual maintenance fees, making them cost-effective for clients looking for a simple, long-term growth strategy.
• Penalty-Free Withdrawal Options: While MYGAs have surrender charges for early withdrawals, many policies include provisions that allow penalty-free access to a portion of the funds each year. Some MYGAs even allow for withdrawals in cases of required minimum distributions (RMDs) or medical emergencies.

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Why Now Is the Right Time to Consider MYGAs

Interest rates have been rising since 2021, making MYGAs more attractive than in previous years. The financial markets remain uncertain, and many investors are looking for safe, fixed-rate investment options.

For clients who have traditionally relied on CDs, MYGAs present a strong alternative, offering similar security with enhanced benefits. Those nearing retirement, in particular, may find MYGAs an ideal option for preserving and growing their nest egg without exposure to market volatility.

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How Financial Professionals Can Help

As a trusted financial advisor, you can guide clients toward the most suitable options based on their financial goals. Here’s how to start the conversation:

• Bring Up Tax Refunds: Ask clients about their plans for their refund and present MYGAs as an alternative to CDs.
• Discuss Upcoming CD Renewals: Many clients simply roll over their CDs without considering better alternatives. A well-timed conversation can help them explore other options.
• Highlight the Benefits of MYGAs: Emphasize tax deferral, higher rates, and liquidity features that may be more beneficial than a CD.

By providing education and presenting MYGAs as a compelling alternative, financial professionals can help clients make more strategic investment decisions.

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Contact us today to discover proven strategies to enhance your relationship with your clients and expand your product offerings! 

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