Which pays more, a fixed annuity or a CD?
Neither wins across the board. A multi-year guaranteed annuity (MYGA) typically pays a somewhat higher guaranteed rate than a bank CD of the same term, and that interest compounds without a tax bill until you withdraw it, which a CD can't match. Lean toward a CD instead if you're not yet 59 and a half and there's a real chance you'll want this cash sooner, if you're planning for something inside a two-year window, since MYGAs don't come that short, or if a federal deposit guarantee matters more to you than the extra yield. Rates on both move constantly, so check the quote box on this page for what's available in your state today.
Do fixed annuities typically pay more than CDs?
Usually, yes. A multi-year guaranteed annuity tends to pay somewhere around one to two percentage points more than a CD of the same term. Part of the reason is where each institution puts your money to work: an insurer typically invests premium into bonds that stretch out over many years, while a bank sets its deposit rate against much shorter-term borrowing costs. That gap moves around as interest rates move, so it isn't fixed in stone, but the pattern has held up across most terms for years. Check current rates in the quote box on this page rather than relying on any number printed here, since both MYGA and CD rates shift often.
The trade you're making for that extra yield is liquidity, not safety. A CD from an FDIC-insured bank and a MYGA from a well-rated insurer are both very low-default-risk instruments; the annuity simply asks you to lock your money up for longer in exchange for the higher guaranteed rate.
A hypothetical example: $100,000 for five years
The rates below are round, hypothetical numbers used only to show how the math works, not current offers. Check the quote box for what's actually available today.
Say a hypothetical 5-year MYGA pays 5.50%, compounding annually, against a hypothetical 5-year CD paying 4.00%, also compounding annually. Both start with the same $100,000.
| MYGA (hypothetical 5.50%) | CD (hypothetical 4.00%) | |
|---|---|---|
| Starting balance | $100,000 | $100,000 |
| Value after 5 years | $130,696 | $121,665 |
| Total interest earned | $30,696 | $21,665 |
That's roughly $9,000 more from the MYGA on the same starting balance and the same term, before accounting for the tax difference below, which widens the gap further for money held in a taxable account. Move the rate assumptions up or down and the dollar amounts change, but the shape of the comparison, a MYGA usually ahead by a real margin, tends to hold.
How are fixed annuities and CDs taxed differently?
A bank reports your CD interest as income the year it posts to your account, whether you touch the money or not, while a fixed annuity's growth sits untaxed until the day you actually withdraw it. Inside a taxable account, this is the single biggest practical difference between the two. A CD loses a slice of its interest to taxes every single year, while a MYGA keeps compounding on its full, untaxed balance the whole way through the term.
Tax deferral isn't tax avoidance. When you do withdraw from a fixed annuity, the gain comes out taxed as ordinary income rather than at capital gains rates, and any gain withdrawn before age 59 and a half generally triggers an added 10% IRS penalty on top of the regular tax. If you expect to land in a noticeably higher bracket by the time you withdraw, deferral can end up working against you rather than for you.
What if you need the money before the term ends?
A typical fixed annuity contract allows you to pull out either the interest credited so far or up to 10% of the account's value each year with no charge from the carrier. A CD usually offers nothing comparable; breaking it open early forfeits several months of interest, commonly somewhere between three and twelve. There's a second layer on the annuity side too: withdrawing a gain before you turn 59 and a half brings in the IRS's own 10% additional tax, on top of anything the carrier charges, so this isn't the right home for money you might need ahead of that age.
Neither product was built to hold cash you might need with little warning. When the goal is a true emergency cushion, an ordinary savings account that pays a good rate is still the more sensible parking spot, even though the yield runs lower.
Which is safer, a CD or a fixed annuity?
A CD sits under a federal safety net: FDIC coverage, or NCUA at a credit union, protecting a quarter million dollars for each depositor at each bank. A fixed annuity has no such federal backstop. What stands behind your contract instead is the issuing insurer's own ability to pay claims, with your state's guaranty association as a second layer if that insurer ever goes under. Both track records run strong, but one guarantee traces back to Washington and the other to a private balance sheet, which is exactly why the carrier's own strength rating deserves more weight than the rate it's advertising.
Among annuity types, a fixed annuity is the one built to go head to head with a CD. Want growth tied to the market instead? A fixed index annuity fits that role. Chasing lifetime income instead of a lump sum? An income annuity is the better tool for that job. Our annuity calculators can crunch the specific numbers for your own situation.
When is a CD the better choice?
Lean toward a CD if you haven't reached 59 and a half yet and access matters more than yield, if the goal you're saving for sits less than two years away, since MYGA terms generally start around that point, or if staying inside FDIC coverage limits is simply non-negotiable for you. Shorter than roughly two years, a CD is really the only option between these two, since MYGA terms don't reach down that far.
Fixed annuity vs. CD at a glance
The two products are built to do different jobs. Here's where they actually diverge.
| Feature | Fixed annuity (MYGA) | Certificate of deposit |
|---|---|---|
| Issued by | Insurance companies | Banks and credit unions |
| Typical term | 2 to 10 years | 3 months to 5 years |
| Typical minimum deposit | Often $2,500 to $3,000, varies by carrier | Any amount above the bank's minimum |
| Tax on interest | Deferred until withdrawn | Taxable each year as it's earned |
| Access before term ends | Free withdrawal allowance, often 10% a year; surrender charges beyond that; 10% IRS penalty on gains before 59 and a half | Generally none; early withdrawal forfeits interest and closes the account |
| Backed by | Claims-paying ability of the insurer, plus a state guaranty association backstop | FDIC or NCUA insurance up to the applicable limit |
| Rate guaranteed for | The full term you select | The full term you select |
Rates change daily on both sides, so use the quote box on this page for today's numbers in your state rather than any figure printed here.
Other annuity comparisons to consider
- Fixed index annuity vs CD: trading a guaranteed rate for market-linked upside
- Fixed annuity vs fixed index annuity: two ways to get a guaranteed floor
- MYGA guide: how multi-year guaranteed annuities work in more detail
- CD vs annuity calculator: run your own numbers side by side
Frequently asked questions
Is a fixed annuity better than a CD?
It depends on your timeline and your priorities, not just the rate. MYGAs generally carry a modest rate edge over CDs of the same term, and the interest defers tax until you take it out. A CD makes more sense if you'd realistically need this cash before age 59 and a half, if you're saving toward a goal less than two years out, or if a federal insurance guarantee outweighs a slightly better rate for you.
Are fixed annuities FDIC insured?
No. A fixed annuity is not a bank deposit and carries no FDIC coverage. Your guarantee rests on the claims-paying ability of the insurance company that issued the contract, backed up by your state's life and health guaranty association if that insurer ever fails. Coverage limits differ from state to state.
What exactly is a MYGA?
It's short for multi-year guaranteed annuity, a single-deposit contract that pays a set interest rate for a chosen number of years. Fixing both the rate and the length up front is exactly what puts a MYGA in direct competition with a CD. Some carriers market the same structure under other names, like fixed rate annuity or single premium deferred annuity.
Can you lose money in a fixed annuity?
Market swings don't touch your principal, and your rate stays locked for the chosen term. That said, you could still net less than you deposited if a surrender charge from an early withdrawal exceeds what you've earned, or if a gain comes out before age 59 and a half and the IRS penalty applies. Outside of those two scenarios, the remaining exposure is simply the issuing company's own solvency.
What happens once the term is up?
A handful of paths open up: cash out entirely, exchange the funds into a fresh fixed annuity, annuitize into a stream of income payments, or take no action and let the current contract renew. Doing nothing usually means an automatic renewal at whatever fresh rate the carrier declares, so put the maturity date somewhere you'll actually see it instead of letting the contract carry on unchecked.
Why do some rate listings look higher than others?
Two common reasons. Some listings include simple-interest products at their stated rate, and simple interest doesn't compound, so the actual annual yield ends up lower than the number on the page. Other listings may include contracts from carriers with no AM Best rating at all. Comparing compound-interest, rated products against each other keeps the comparison apples to apples.
Written and reviewed by
James Forren Warren
Licensed Retirement Income Strategist · License #20551202
James Forren Warren is a licensed Retirement Income Strategist with Tax Free Wealth Plan. For the past five years he has helped individuals and families turn their savings into retirement income they can count on. He writes and reviews the annuity research on this site and keeps it plain: what a product does, what it costs you, and who it actually fits.
Sources
Educational only, not investment, tax or legal advice. Tax Free Wealth Plan LLC is a licensed insurance agency, not a registered investment adviser or broker-dealer. Annuities are not bank deposits, are not FDIC insured and are not guaranteed by any government agency. Guarantees are backed solely by the claims-paying ability of the issuing insurance company. Features, rates and availability vary by state and change over time; the contract and disclosure documents govern.