Certificate of Annuity (COA) – is a financial instrument/security issued by government agencies which guarantee the initial interest rate for funds on deposit for the entire length of the maturity of the security. Typical maturity/tenor for these deposit instruments are 1, 3, 5, 10 or 15 years. The main features of COA are liquidity, preserves principal, and stipulates a fixed rate of return.
Following are the two options available for policy holder at maturity:
(i) withdraw the funds without having to pay a surrender charge (it is important to note that taxes must be paid on the interest earned and there is a 10% penalty on the earnings if the policyholder is less than age 59½);
(ii) roll the funds over into another annuity for a limited number of years or a product of longer duration. In contrast to certificates of deposit (CDs), interest earned through this annuity accumulates on a tax-deferred basis.