Fixed Annuity vs. CDs: Which Is Better for Your Savings?
October 15, 2025
Best 5 Year Fixed Annuity Rates
Knighthead Life Insurance Company currently offers the best 5 year fixed annuity rate of 6.45% (applications must be signed by Friday, October 17, to lock-in this current rate).
| Term | Insurer | Review | Annuity | Rate | AM Best | Apply |
|---|---|---|---|---|---|---|
| 5 Years | 
| Knighthead Life | Staysail Annuity | 6.45% Simple | A- | Apply |
| 5 Years | 
| Mountain Life | Alpine Horizon | 6.15% | B+ | Apply |
| 5 Years | 
| Revol One | DirectGrowth | 6.00% | B++ | Apply |
| 5 Years | 
| Farmers Life | Safeguard Plus | 5.75% | B++ | Apply |
“Rates shown are for informational purposes only and subject to change before contract issue. Guarantees are backed by the claims-paying ability of the issuing insurer. State variations may apply.”
*NOTE: Click on the insurance company or the annuities name for more details. You can find the best rates for fixed index annuities here; if you are looking for them instead. Shop all fixed annuity rates.
Compare Fixed Annuity Rates Side-by-Side
Compare More 5 Year Fixed Annuity Rates
| Company Name | Annuity Name | Fixed Rate (%) | Guaranteed Years | Free w/d Yr 1 | Free w/d Yrs 2+ |
|---|
Calculate How Much Your 5 Year Annuity Will Earn
You can use this annuity calculator to see how much your investment will earn each year and it’s projected value at maturity. You just need to enter:
- Investment amount
- 5 year fixed annuity rate from the live rates table above
- Annuity term (number of years)
- Select how often interest compounds (we suggest annual if you are unsure)
Fixed Annuity • Flexible Compounding
Initial premium (before taxes/fees).
Please enter an amount greater than 0.
Annual nominal rate. APY varies with compounding.
Please enter a rate between 0% and 20%.
Guaranteed period (typical MYGA terms are 2–10 years).
Please enter a whole number of years between 1 and 20.
Many MYGAs credit annually; others shown for comparison.
Educational tool. Contract crediting, MVAs, and surrender charges vary by carrier. Request a carrier illustration for exact figures.
Projected Maturity Value
$0
Total Interest
$0
Effective APY
0.00%
Enter your numbers to see the projection. APY reflects your compounding choice and interest treatment.
Year-by-Year Earnings
Breakdown updates as you type.
| Year | Start Balance | Interest Earned | End Balance |
|---|---|---|---|
| Enter values to see the schedule. | |||
How Do 5 Year Fixed Annuities Work?
5 year fixed annuities, or multi-year guaranteed annuities (MYGA), pay a specified rate for 5 years. Annuities are issued by insurance companies, and product features vary by insurance company and from product to product. Many fixed annuities allow you to take free withdrawals of your interest or up to 10% of your annuity’s account value each year.
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)
Fixed Annuity vs. CDs vs. Bonds
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
CD vs Annuity Calculator
October 15, 2025
CD vs. Fixed Annuity vs. Bonds Comparison Table
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 5-Year Fixed Annuity?
- Near-retirees seeking stability: If you’re 3–10 years from retirement and want a safe, predictable place for a portion of your nest egg, a 5-year fixed annuity can lock in a guaranteed rate and smooth market noise.
- CD/treasury savers wanting higher yields: Investors who like CDs or Treasuries but want potentially higher rates and tax-deferred growth may find a 5-year fixed annuity a smart upgrade.
- Risk-averse investors: If market volatility keeps you up at night, the principal protection and guaranteed interest can provide peace of mind.
- Bridge planners: Folks who need to “bridge” income needs between now and Social Security or a pension start date can align a 5-year term with their timeline.
- Tax-sensitive savers: Those in high tax brackets who don’t need current income may benefit from tax-deferred compounding versus a taxable CD or bond fund.
- Business owners or self-employed: Individuals looking to carve out a predictable, low-maintenance asset inside a broader plan (SEP-IRA, Traditional IRA, non-qualified money) without daily monitoring.
5 Year Fixed Annuities May Be Good For:
- The Pre-Retirement Planner (age 58–64): Has $150k–$400k in taxable savings; wants to protect principal and earn a set rate for 5 years while deciding when to claim Social Security.
- The CD Ladder Upgrader (age 50–70): Comfortable with CDs but frustrated with rate resets; values higher fixed rates and tax deferral; plans to hold to term.
- The Conservative Caretaker (age 60–75): Prioritizes safety over upside; wants simple, guaranteed growth and clear surrender schedules; may ladder multiple 5-year contracts.
- The Small Business Owner (age 45–60): Has variable income and prefers one “sleep-at-night” asset in the mix; appreciates predictable growth without market management.
Types of Annuity Rates
Multi-Year Guaranteed Annuity (MYGA)
Multi-Year Guaranteed Annuities (MYGA) pay a set interest rate for the length of your contract. Most annuities provide some liquidity but not all; so that is something to keep in mind.
Variable Annuities
Variable annuities provide an opportunity to invest your contributions in various sub-accounts tied to the performance of the stock market. This flexibility allows for potentially higher returns, but it also comes with increased risk.
Single Premium Immediate Annuity
As the name suggests, a single premium immediate annuity provides a steady stream of income shortly after an investor purchases a contract, usually within 30 days, and always within 13 months.
Traditional Fixed Annuity Rates
Traditional fixed annuity rates do not guarantee a set interest rate for the entire length of the annuity contract. The first years rate is specified and a new rate is set on each anniversary.
Fixed Index Annuity Rates
Fixed index annuity rates combine elements of both fixed and variable annuities. They offer a minimum guaranteed interest rate, similar to fixed annuities, but also provide the potential for additional earnings based on the performance of a stock market index.
Understanding 5 Year Fixed Annuity Rates
Fixed annuities offer retirement savers a way to lock in guaranteed returns, but the rates you receive depend on several key factors. By understanding how these rates are set and learning the meaning of essential terms, you can make better choices for your financial future.
Interest Rate Environment
The primary driver of fixed annuity rates is the current interest rate environment, especially the yields on treasury and corporate bonds. For example, if the yield on U.S. Treasury bonds rises from 2% to 4%, insurers can typically offer higher fixed annuity rates—such as increasing new 5-year fixed annuity rates from 3% to 4.5%. Conversely, when interest rates fall, the rates offered on new annuity contracts usually decrease.
Economic Growth and Inflation
Strong economic growth and rising inflation expectations often lead to higher interest rates. This, in turn, can boost the rates available on fixed annuities. Even when markets are volatile, fixed annuities provide contractual guarantees that protect your principal and lock in a guaranteed rate for the term you choose.
Insurer Portfolio and Risk Management
Insurance companies invest the premiums they receive in high-quality bonds and other fixed-income assets. The portfolio yield (the average return earned on these investments) and duration (the average time until the assets mature) directly influence the rates insurers can offer. For instance, a portfolio with a longer duration may benefit from locking in higher yields when rates rise, while a shorter duration may be less sensitive to changes.
More conservative investment portfolios may offer slightly lower rates but provide greater stability. In contrast, more aggressive allocations might support higher rates, though they could be more variable at renewal time.
Company Strength and Competition
Financially strong insurers with higher credit ratings tend to offer more competitive and sustainable fixed annuity rates. Competitive markets and sales targets also influence pricing, with carriers often adjusting new-business rates on a weekly or monthly basis.
Key Features and Definitions
- Market Value Adjustment (MVA): An MVA is a feature sometimes included in fixed annuity contracts. If you make withdrawals that exceed the allowed free withdrawal amount or surrender your contract early, the MVA can increase or decrease your payout based on current interest rates and market conditions.
- 1035 Exchange: This refers to a tax-free transfer of funds from one annuity contract to another. If you find a better fixed annuity rate after your initial term ends, you can use a 1035 exchange to move your money without triggering taxes.
- Liquidity Features: Many fixed annuities offer options like 10% free withdrawals each year (without penalty), MVAs, and surrender schedules that outline fees if you withdraw more than the allowed amount or surrender early.
Actionable Steps for Comparing Rates and Features
- Compare annuity products by term length and the current interest rate backdrop—longer terms may pay more when bond yields are high.
- Check insurer ratings for financial strength and review liquidity features such as free withdrawal allowances, MVA provisions, and surrender schedules.
- At renewal, revisit fixed annuity rates; your initial rate is guaranteed for the term, but you may be able to shop around or use a 1035 exchange for better rates.
Conclusion
In summary, understanding the drivers of fixed annuity rates and comparing options can help you secure a higher guaranteed return for your retirement savings.
How are Fixed Annuities Taxed?
The interest you earn in an annuity grows tax-deferred, which means you don’t have to pay taxes on the interest your annuity earns until you make a withdrawal from your annuity. Generally, earnings from annuities are taxed at your ordinary income tax rate using the LIFO (last in, first out) method.
Ultimately, how your annuity earnings will be taxed depends on the type of funds you use to purchase the annuity.
Below is an example showing how tax deferral could increase your earning power. Consider someone whose Federal Tax bracket is 32% who owns an annuity that earns 4.50%. To match those same earnings in a taxable investment, they would have to earn 6.62% instead.
Under current law, annuities grow tax-deferred. An annuity is not required for tax deferral in qualified plans. Annuities may be subject to taxation during the income or withdrawal phase. Neither My Annuity Store, Inc. nor any financial professionals acting on its behalf should be viewed as providing legal, tax, or investment advice. You should be advised to rely on your qualified tax professional.
When a Fixed Annuity Could Make Sense (Use Case Comparison)
Explore common scenarios where a fixed annuity may be considered versus doing nothing, buying a CD, or using other fixed‑income instruments. A fixed annuity—also called a Multi‑Year Guaranteed Annuity (MYGA)—offers a guaranteed rate for a set term. Expand each panel for: the situation, why a fixed annuity might fit, alternatives, and key evaluation cautions.
Situation
Current CDs are maturing and future short‑term rates might fall; desire to lock multi‑year yield while keeping staged liquidity.Why Fixed Annuity Might Fit
Fixed annuities may offer higher multi‑year guaranteed rates versus new CDs at 3–7 years; tax deferral can enhance effective after‑tax yield in a taxable account.Alternatives
New CD ladder, Treasury ladder, short/intermediate bond funds, high‑yield savings (variable), fixed indexed annuity w/ fixed declared rate.Cautions / Evaluate
Surrender schedule vs desired liquidity. Rate hold/transfer timing. Insurer rating diversification. Compare net after‑tax vs CD after annual tax.Situation
Large balances in CDs / savings produce 1099‑INT each year; marginal tax rate erodes compounding.Why Fixed Annuity Might Fit
A fixed annuity defers taxation until distribution; more principal compounding pre‑tax may result in higher after‑tax accumulation over identical nominal rates.Alternatives
Municipal bonds (credit risk), deferred fixed indexed annuity, EE/I Bonds (limits), structured CDs (complexity).Cautions
Tax deferral ≠ elimination; eventual ordinary income. Potential 10% IRS penalty on taxable gains if prior to age 59½ (non‑qualified). Keep emergency liquidity outside.Situation
Funds earmarked to cover expenses until Social Security or pension start; need predictability.Why Fixed Annuity Might Fit
Guaranteed multi‑year growth creates a dedicated “future income bucket” insulated from market sequence risk.Alternatives
Short bond ladder, TIPS ladder, fixed indexed annuity w/ limited volatility, stable value inside plan.Cautions
Ensure maturity aligns with income need date. Avoid overcommitting; maintain liquid reserves for unexpected expenses.Situation
Investor rolled from a 401(k) and wants to park a portion safely while designing a diversified allocation.Why Fixed Annuity Might Fit
Provides a guaranteed anchor segment; reduces need to liquidate equities during initial downturn period.Alternatives
Stable value fund (if available), short‑term Treasury ladder, money market sweep, fixed indexed annuity with no fee.Cautions
Compare internal yields vs stable value. IRA RMD timing—ensure liquidity once RMDs begin. Monitor insurer ratings.Situation
Existing fixed annuity is crediting a minimum guaranteed rate below current market fixed annuity offerings.Why Fixed Annuity Might Fit
A 1035 exchange can lock a higher guaranteed rate without current taxation, potentially improving future accumulation.Alternatives
Keep existing contract (if surrender nearly over), fixed indexed annuity, partial 1035, or diversify into ladder.Cautions
Surrender charge balance, loss of legacy riders, new surrender clock resets, suitability of replacement. Document comparison.Situation
Approaching / just entered retirement; fear of needing to liquidate equities in a downturn to fund income.Why Fixed Annuity Might Fit
Provides a guaranteed “income bridge” bucket, allowing risk assets time to recover before drawing them.Alternatives
Cash ladder, short Treasury ladder, buffered annuity (with risk), fixed indexed annuity with cap/participation potential.Cautions
Assess portion vs inflation risk (fixed nominal). Plan ladder maturities to refill income needs sequentially.Situation
Expectation that prevailing fixed income yields may drop within the next rate cycle.Why Fixed Annuity Might Fit
Multi‑year guarantee locks a rate beyond typical short CD windows; shields from near‑term reinvestment risk if cuts occur.Alternatives
Longer‑term CDs, Treasuries (duration / market price volatility), fixed indexed annuity declared rate strategy.Cautions
If rates rise instead, funds are committed unless surrendering (charges). Ladder to mitigate rate direction uncertainty.Situation
Assets currently in single‑name accounts without POD/TOD designations; heirs want simplicity.Why Fixed Annuity Might Fit
Direct beneficiary designations can bypass probate and accelerate claim settlement versus estate process.Alternatives
Add TOD/POD to CDs, revocable trust titling, transfer‑on‑death brokerage with short‑term instruments.Cautions
Beneficiaries must keep updated. Death proceeds still taxable on gain (ordinary income). Consider overall estate plan cohesion.Situation
Lump sum awaiting a structured long‑term plan; desire to avoid rushed investment risk.Why Fixed Annuity Might Fit
Offers guaranteed accumulation while comprehensive plan & tax strategy (e.g., staged Roth conversions) is finalized.Alternatives
T‑bill ladder, high‑yield savings (variable), short muni ladder (if tax bracket warrants), partial DCA into portfolio.Cautions
Avoid locking too large a share for too long. Analyze liquidity for near‑term tax payments or capital deployment needs.Situation
Intend to perform annual Roth conversions; want stable value for amounts earmarked to convert.Why Fixed Annuity Might Fit
Ensures the pre‑conversion asset value isn’t whipsawed by markets, helping precisely size each year’s taxable conversion.Alternatives
Treasury ladder, high‑grade short bond fund, money market (variable reinvestment risk).Cautions
Ensure term doesn’t extend beyond the conversion schedule. Consider opportunity cost if equities rally sharply during holding period.This educational comparison is hypothetical and not personalized advice. Fixed annuities are long‑term insurance products with surrender periods and possible market value adjustments (if applicable). Withdrawals of taxable gains before age 59½ (non‑qualified) may incur a 10% IRS penalty. Rates, features, free withdrawal provisions, and carrier financial strength vary; guarantees rely on the insurer’s claims‑paying ability. State guaranty association coverage differs from and is not a substitute for FDIC insurance. Evaluate liquidity needs, tax implications, and suitability prior to purchase.
5 Year Fixed Annuity Rates FAQs
Most carriers lock the rate at policy issue, but many offer an application date rate lock for a limited window (e.g., 30–60 days) if funds arrive within that period. If rates improve before issue, some companies apply the higher rate; others honor the rate in effect on the issue date only. We’ll confirm the lock policy before submitting.
No. Availability varies by state and carrier. Some products are not filed in certain states or have different minimums, features, and crediting rates. We’ll verify your state-specific options and show you compliant alternatives if your first choice isn’t available.
Yes. You can roll over from a 401(k), 403(b), or IRA into a traditional IRA annuity via direct trustee-to-trustee transfer. This keeps funds tax-deferred and avoids withholding. We’ll guide the paperwork and timing to prevent any taxable events.
Most 5-year fixed annuities allow RMDs without surrender charges, even if they exceed the free-withdrawal amount. The insurer can calculate and distribute your RMD annually upon request. We’ll check the carrier’s RMD accommodation and set it up for you.
Near maturity, you’ll receive options: take your funds in cash, transfer/1035 exchange to a new annuity, or in some cases roll into a renewal rate period. If you take no action, many contracts auto-renew into a 1-year or multi-year guarantee period with the then-current renewal rate. We’ll contact you well before maturity to avoid unwanted auto-renewals.
Most contracts allow 10% penalty-free withdrawals annually after the first year. Additional withdrawals may incur surrender charges and market value adjustments (MVA), if applicable. Some contracts also include nursing home/terminal illness waivers.
With fixed annuities, the insurer guarantees the credited interest and return of principal if held to term, subject to the company’s claims-paying ability. They are not FDIC insured. We’ll review carrier financial strength ratings to match your risk tolerance.
Interest grows tax-deferred. Withdrawals are taxed on a last-in, first-out basis, meaning interest is taxed as ordinary income before principal. Withdrawals prior to age 59½ may incur a 10% IRS penalty on earnings.
Yes. Fixed annuities allow you to name primary and contingent beneficiaries. At death, proceeds are typically paid directly to beneficiaries and bypass probate, subject to state rules and contract provisions.
Minimums vary by carrier, commonly $10,000–$25,000. Some carriers offer tiered rates that improve at higher deposit levels. We’ll show you the rate breakpoints.
Many 5-year contracts include an MVA that can increase or decrease your surrender value if you withdraw more than the free amount before maturity. It does not apply if you hold to term. We’ll show you MVA and non-MVA options side by side.
With e-apps and direct transfers, most policies issue in 1–3 weeks depending on transfer speed from your current custodian. Rate locks, if offered, typically cover this window. We’ll coordinate to keep your chosen rate.
Trusted Annuity Insight
Jason has distributed more than $1.5 billion in annuities over his 20 year career. His mission is to democratize access to annuities for all Americans and provide a safe and simple way to purchase an annuity.
Fixed
MYGA
Indexed
Income Planning
