What are contingent deferred sales charges (CDSC)?

Contingent deferred sales charges (CDSC) are fees that are applied when an investor makes an early withdrawal from an annuity. This type of fee is designed to discourage short-term investing and ensure that investors remain in the annuity for a longer period, allowing the insurance company to recoup expenses associated with the annuity's purchase. The CDSC typically decreases over time; for example, it may start at a higher percentage during the first few years and gradually reduce to zero after a specified holding period. This structure helps provide a more stable investment environment by encouraging individuals to hold their investments longer, aiding in effective financial planning and management.