Throughout recent years, Americans have been pulling their retirement savings out of stocks and stock mutual funds and putting them into places that they hope are safer.

One beneficiary of this flight to safety has been bonds and bond mutual funds, but many people making this choice are probably unaware of a major risk they are taking.

Interest rates right now are at historical lows. In October 2010, for example, the 5-year Constant Maturity Treasury rate was barely above 1%. There is always the possibility that interest rates could remain at their current levels or fall lower, but clearly there is more room for them to move upwards than downwards.

The issue facing you is that if interest rates rise, the value of the bonds and bond mutual funds that you own will tend to fall. For example, if the Treasury rate was to rise to 4%, a new purchaser could get an interest rate of 4% on a new bond. To induce that person to purchase your bond that has an interest rate of only 1%, you would need to drop the price quite a bit.

What we fear is that folks who have moved their money from stocks to bonds seeking safety may find that they have jumped out of the frying pan into the fire.

There are a wide variety of products that offer assurances of safety, such as savings accounts and money market accounts, but the problem with these financial products right now is that their interest rates are even more dismal, typically well below 1%.

As a person looking to protect and grow your retirement savings, you may be wondering where to turn. Where can you find the safety you desire yet still earn a respectable interest rate? We suggest that you consider annuities.

Fixed annuities offer interest rates that are set by insurance carriers, declared in advance, and guaranteed for at least one year at a time. These annuities typically offer higher interest rates than you can find on other safe financial products.

Fixed indexed annuities offer interest rates that are based upon potential future increases in a stock or bond market index, along with the guarantee that if the index declines, your principal is protected. These annuities offer the potential for even higher interest credits due to their index link.

All fixed and fixed indexed annuities offer four very valuable layers of protection.

1. They are issued by insurance carriers that back the annuities with a pool of assets called “reserves” that are mandated and monitored by state insurance regulators.
2. These insurance carriers are obligated to use all of their general assets to protect annuity values from the effects of any adverse financial conditions.
3. These insurance carriers provide annuity owners with written, verifiable, contractual guarantees that the money you put into an annuity is protected from loss, other than perhaps a penalty for early withdrawal.
4. If you have any problem with your annuity carrier, you can contact your state’s insurance department, which has jurisdiction over the carrier.

Thus, if you are looking for safety with better interest rates than you are finding elsewhere, consider annuities.

This article is for general information purposes only. We do not provide investment or tax advice. If such advice is needed, the advice of a qualified advisor should be sought.