Bank Annuity Sales Fall 5% In February

Bank fixed annuity sales usually are influenced by the spread between the crediting rates offered by annuity carriers and the interest rates banks offer on short-term certificates of deposit.

Kehrer says the spread between fixed annuities and 1-year CDs shriveled to 1.63 percentage points, or 163 basis points, in mid-February, from 1.8 percentage points, or 180 basis points, in mid-January.

“Moreover, in mid-February fixed annuities were crediting average base new money rates of 2.77, down 18 basis points from January and 23 basis points below the 3% level, which used to be the standard minimum in a fixed annuity contract,” Kehrer says.

Powell says the fixed annuity sales growth was “perplexing” and suggests that many investors might be resigned to the belief that interest rates are going to be low for some time, despite the fact that rates actually rose slightly in February.

The recent federal income tax cut might have helped bank customers rebound from a post-holiday slump, Powell says.

“There’s a general feel good nature in a reduction in taxes,” Powell says. “People think they have more to invest and probably do.”