Annuities, Money Market Accounts, CDs
Although they might have fancy sounding names, annuities, money market accounts and CDs are different ways of investing. Annuities, which are sold by insurance companies, are popular for retirees who want to receive a steady income. The company can dole out payments on a monthly, quarterly or annual basis. You can even get a lump sum payment. Fixed annuities make guaranteed payouts. Variable annuities can fluctuate depending on the underlying investments [source: CNNMoney.com]. Annuities provide a nice tax shelter because the money you invest grows tax-deferred. When you begin making withdraws, the amount you put into the annuity is tax free. However, the government will tax you on the earnings [source: CNNMoney.com].
Money market accounts pay a higher interest rate than traditional savings accounts. However, you have to keep a minimum balance. Certificates of deposit, or CDs, are good ways to stash away extra money for a short period. CDs are one of the safest investments, however, they pay the lowest rate of return. Like a 401(k) or an IRA, the bank will penalize you for withdrawing the money early [source: The Wall Street Journal].