5-Year CD vs. Structured Settlement

5-Year CD vs. Structured Settlement

Tax Advantage Still Favors Structured Settlement


August 16, 2012 – Two days ago, with a headline that couldn’t have been more blunt, Bloomberg News reported that the 5-Year CD fell below 1% for the first time ever.

While you’d be hard-pressed to find anyone championing this sobering report, it’s important to keep this news in its proper perspective.  If you believe economist Gary Shilling, author of “The Age of Deleveraging,” our economy is in for another five-to-seven years of malaise at best.

What’s a person to do?

For those who accept our current economic reality and simply want to “park” their settlement proceeds in a safe place until things turn around, structured settlement deserve a second look.  Consider:

  • The national average for 5-Year CD rates is currently 0.99%
  • The current best structured settlement payout that mimics a 5-Year CD (i.e. Return of principal plus interest over five years) is 0.78%
  • Ergo, depending on one’s tax bracket the structure payout may be better/worse/the same as a CD:
    • If Marginal Tax Bracket > 21%; Then, Advantage = Structure
    • If Marginal Tax Bracket < 21%; Then, Advantage = CD

Since most people generally estimate a 33% marginal tax bracket, the Structured Settlement would seem the most logical choice for those seeking safety, security and return of principal.

Bottom Line:  Our advice to you is the same today as it was yesterday and will be tomorrow.  Know your tax position, compare and make an informed decision about how to arrange for your post-settlement affairs.

Please call anytime we can help you make the choice that’s right for YOU!

PS  I would be remiss if I failed to emphasize this analysis is just for the short-term.  Much goes into determining whether or not a structured settlement is an appropriate choice for you.  But even in this low-interest climate, when compared to “what else” you can do with your money, the structured settlement still merits your consideration.  Thank you!


Finn Financial Group