Fixed Annuity vs. CDs: What Pays More Interest in 2025?
October 15, 2025
Updated —
Today’s Best 3 Year Fixed Annuity Rates (MYGA Rates)
We've made it easy for you to compare today's best 3-year fixed annuity rates from the top annuity providers all in one place.
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Highest 3 Year Fixed Annuity Rates Preview
- Knighthead Life*5.60% Simple Interest
- CL Life*5.50%
- Mountain Life*6.00%
Example: $100,000 at 5.60% simple interest earns $5,600 annually (before taxes). Actual credited method & compounding may vary by contract.
*Illustrative snapshot. See the live table below for full comparison including carrier strength, liquidity, and renewal options. Rates vary by state.
Rates subject to change without notice. Availability & features vary by state and insurer. Guarantees are backed by the claims‑paying ability of the issuing insurance company. Not a bank product. Not FDIC insured. State guaranty association limits apply (vary by state). Logos are property of their respective insurers; shown for educational platform availability only and do not imply endorsement. Company availability, financial strength ratings, and product terms are subject to change.
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Logos are property of their respective insurers. Display is for educational comparison and platform availability only.
Best 3 Year Fixed Annuity Rates
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How Do 3 Year Fixed Annuities Work?
A 3-year fixed annuity is a type of annuity that pays a guaranteed interest rate for the entire 3-year initial contract period. For this reason, these types of fixed-rate annuities are commonly referred to as MYGAs, or multi-year guaranteed annuities.
Insurance companies issue annuities, and product features vary by insurance company and from product to product. Some fixed annuities allow you to take free withdrawals of your interest or up to 10% of your annuity’s account value each year, while other 3-year fixed annuities do not allow any withdrawals during the three year contract.
How interest is credited
Most annuities earn interest daily and credit the interest to the annuity account value each month. More than 90% of all fixed annuities use compound interest, which means you earn interest on top of your interest. However, recently, a handful of annuity companies have begun to offer fixed annuities that credit using simple interest.
Annuities that use simple interest only pay interest on your original deposit and not on the interest you earn; these types of annuities are best for someone who plans to withdraw their interest each month (compounding doesn’t matter in this case).
Taxes: Qualified and Non-Qualified Funds
Qualified annuities
A qualified annuity is an annuity purchased using pre-tax money, usually within a retirement plan like a 401(k), 403(b), or IRA.
- Withdrawal taxation: All withdrawals are taxed as ordinary income, as neither the contributions nor the growth has been taxed yet.
- Early withdrawal penalty: If you withdraw funds before age 59½, you may face a 10% early withdrawal penalty from the IRS, in addition to paying ordinary income taxes.
Non-qualified annuities
A non-qualified annuity is purchased with after-tax dollars.
- Withdrawal taxation: Only the earnings portion of a withdrawal is taxed as ordinary income. The part of the withdrawal that is a return of your original, after-tax contributions (your “basis”) is tax-free.
- LIFO taxation: The IRS applies a Last-In, First-Out (LIFO) rule to non-qualified annuities. This means that for withdrawals or surrenders, the earnings are considered to come out first and are taxed as ordinary income, before your tax-free contributions are returned.
- Early withdrawal penalty: Similar to qualified annuities, non-qualified annuities are subject to a 10% early withdrawal penalty on the taxable earnings portion if you make withdrawals before age 59½.
Liquidity and penalty-free withdrawals
Not all fixed annuities offer the same liquidity or free-withdrawal provisions, so it is important to look closely at these features when comparing annuities. Each annuity will offer one of these three options:
- No free-withdrawals
- Free withdrawals of interest
- 10% free withdrawals (10% of annuity account value)
You also want to consider when the free withdrawals become available. Some annuities make free withdrawals available in year one, while other products don’t allow for any withdrawals until year 2.
Surrender Charges and Early Withdrawal Rules
Typical 3-year Surrender Schedule
A surrender charge is applied to any withdrawal during the 3 year annuity contract that is not allowed by a free withdrawal provision (i.e., interest only, 10% free). Surrender charges in annuities tend to be fairly steep, so it is very important to consider your liquidity needs before purchasing an annuity.
A typical surrender charge schedule is 8% in Year 1, 7% in Year. 2, and 6% in Year 3.
At the end of the 3-year contract, you can renew for another 3 years, transfer your annuity to another insurance company using a tax-free 1035 exchange, or take possession of all of your funds without penalty.
Market Value Adjustment (MVA) explained
An MVA adjusts the value of an early withdrawal based on changes in a specific interest rate index. If interest rates have risen since the annuity was purchased, the MVA will likely be a negative adjustment, decreasing your payout; if rates have fallen, it will be positive, increasing it.
The MVA is typically only applied to withdrawals that exceed any penalty-free limits or to the entire contract if surrendered before the end of a surrender period.
10% Free Withdrawals & When They Reset
10% free withdrawals are a fairly common feature among 3 year fixed annuities, although they are more common in longer-term annuity contracts. The way it works is you are allowed to withdraw up to 10% of your previous year’s account value. You are allowed to take the 10% free withdrawal once per annuity contract year.
59½ Rule and IRS Penalties
The “59½ rule” is an IRS guideline that states you can begin taking withdrawals from qualified retirement plans without incurring the standard 10% early withdrawal penalty once you reach age 59½. This applies to accounts like 401(k)s, 403(b)s, and traditional IRAs.
If you take an early withdrawal from a traditional retirement account before age 59½, the IRS typically imposes a 10% penalty on the taxable portion of the distribution. This penalty is in addition to any ordinary income tax you will owe on the withdrawal.
For example, if you withdraw $10,000 from a 401(k) before age 59½ and none of the exceptions apply, you would have to pay $1,000 in early withdrawal penalties, plus the normal income tax on the $10,000.
Fixed Annuity vs. Bonds. vs. CDs
Which Fits Your Safety and Income Goals?
- Fixed Annuity (MYGA)
- Pros: Guaranteed rate for the term, tax-deferred growth, optional lifetime income features, typically higher yields than comparable CDs.
- Cons: Surrender charges/limited liquidity, insurer credit risk (mitigated by state guaranty associations; not FDIC), potential penalties/taxes on early withdrawals before 59½.
- Best for: Savers seeking predictable growth and tax deferral, and those open to converting assets into future income.
- Certificates of Deposit (CDs)
- Pros: FDIC insurance up to limits, simple and predictable interest, and short to medium terms available.
- Cons: Interest taxed annually, early withdrawal penalties, often lower yields than top MYGAs.
- Best for: Short-term cash needs, emergency reserves, and ultra-conservative savers prioritizing FDIC backing.
- Bonds (Treasuries, corporates, munis)
- Pros: Broad choice of durations/credits, tradable before maturity, potential tax advantages (e.g., munis), Treasuries carry full faith and credit of the U.S.
- Cons: Market price can fluctuate with interest rates and credit risk, coupons generally taxed annually (except munis), and reinvestment risk.
- Best for: Investors comfortable with market movement and want income and flexibility, or specific tax planning via munis.
- Quick contrasts
- Safety backstop: CDs = FDIC; MYGAs = insurer guarantees + state guaranty associations; Bonds = issuer/market risk (Treasuries are the highest credit quality).
- Taxes on growth: MYGAs defer until withdrawal; CDs and most bonds tax interest annually.
- Liquidity: Bonds are tradable (price risk); CDs/MYGAs penalize early access (MYGAs often allow up to 10% free withdrawals annually).
- Income options: Only annuities can convert to lifetime income; CDs and bonds provide interest only.
More CD vs. Annuity Content
Fixed Annuity vs CD Calculator
October 15, 2025
Fixed Annuity vs. CD vs. Bonds Comparison Guide
Feature
Fixed Annuity (MYGA)
CDs
Bonds
Safety of Principal
Insurer guarantees; state guaranty association limits (not FDIC)
FDIC insured up to limits
Market/issuer risk; value fluctuates
Rate Type
Guaranteed for term (Revol One at 6.00% for 5/7/10 yrs)
Fixed for term
Fixed coupon; price varies
Typical Yield
Often higher than comparable CDs
Generally lower than top MYGAs
Varies by duration/credit; may be lower than 6%
Taxes on Growth
Tax-deferred until withdrawn
Interest taxed annually
Coupon taxed annually (except munis)
Liquidity
Surrender period; typically 10% free withdrawals/yr
Early withdrawal penalties
Tradable; may sell at gain/loss
Income Options
Optional lifetime income (annuitization/riders)
None
Interest income only
Disclosures: Guarantees are backed by the issuing insurer’s financial strength and claims-paying ability. CDs are FDIC insured up to limits. Bonds are subject to interest rate and credit risk. This is educational, not individualized advice.
Who Should Consider a 3 Year Fixed Annuity?
- Safety-first savers who want principal protection with a guaranteed rate, not market swings.
- Folks sitting on cash or CDs earning less who want to lock in a higher rate for a short, defined period.
- Near-term planners with a 2–4 year goal (home upgrade, tuition bridge, sabbatical fund) who need certainty.
- Pre-retirees who want a safe parking spot while deciding on longer-term income or FIAs later.
- Retirees building a ladder—staggering 2–5 year annuities to manage interest-rate risk and liquidity.
- Investors who dislike bond/stock volatility but still want a better yield than a savings account.
- People who value tax deferral—no 1099s on interest until you withdraw.
- Business owners planning short-term cash reserves with predictable growth.
- Rollover candidates with small IRAs/old 401(k)s looking for a simple, guaranteed option.
- Rate shoppers who think rates might rise soon and prefer a short commitment before locking in longer.
- Anyone who needs clean liquidity terms (e.g., 10% free withdrawals annually) without surrendering everything.
- Those comfortable with insurance company guarantees and state guaranty association coverage limits.
- Simplicity seekers—no fees, no moving parts, just a fixed rate for 3 years.
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FAQ: 3‑Year Fixed Annuity Rates
What is a 3‑year fixed annuity?
A 3‑year fixed annuity (often called a 3‑year MYGA) guarantees a fixed interest rate for three years. Your principal is protected, growth is tax‑deferred, and liquidity follows the carrier’s contract rules.
How are 3‑year fixed annuity rates determined?
Carriers set rates based on market interest rates, their general account yields, and competitive positioning. Rates can change frequently; locking in secures today’s rate for the full 3‑year term.
What’s a typical range for 3‑year MYGA rates?
Rates vary by market conditions and insurer. Use our live rate sheets to see current top offers. If you want, we can embed a real‑time table next to this FAQ.
Is the rate guaranteed for the full 3 years?
Yes. The declared rate is guaranteed for the contract’s 3‑year term unless the product specifies banded or promotional conditions (rare). Review your contract for renewal terms after year three.
What happens after the 3‑year term ends?
You can renew, transfer (1035 exchange) to another annuity, or withdraw funds per the contract. Most carriers offer a renewal rate, and you’ll have a window to move funds without surrender charges.
How liquid is a 3‑year fixed annuity?
Most contracts allow annual free withdrawals (commonly up to 10% of account value). Exceeding free amounts during the surrender period can incur surrender charges. Early withdrawals may be taxable and, if before age 59½, subject to a 10% IRS penalty.
Are there fees?
Base MYGA contracts generally don’t have annual policy fees. Optional features (e.g., enhanced liquidity or riders) may have costs. Always check the product disclosure.
How are 3‑year fixed annuities taxed?
Growth is tax‑deferred. Withdrawals are taxed as ordinary income. If you take funds before age 59½, the IRS may assess a 10% penalty on taxable amounts, in addition to income tax. Consult a tax professional.
Are 3‑year annuities suitable for short‑term cash management?
Often yes for conservative investors seeking higher yields than bank CDs with principal protection. Consider your liquidity needs (emergency fund, upcoming expenses) and surrender terms before committing.
Questions or current top rates? Call 855‑583‑1104 or email info@myannuitystore.com. We’ll keep it simple and put your goals first.
Sources & Citations
We regularly update this page and cite primary sources, carrier filings, and regulator guidance:
- NAIC. “Buyer’s Guide for Deferred Annuities.” naic.org
-
FINRA. “Investor Education: Annuities”
- FDIC Deposit Insurance: Know Your Risk. FDIC
- IRS Publication 575 (2024), Pension and Annuity Income. IRS Publication 575
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