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.
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Compare Fixed Annuity Rates Side-by-Side
Compare Annuity Rates Side-by-Side
Click the compare button in the left column to compare up to 3 fixed annuities side by side.
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 annuity rates pay a specified rate for 5 years. Many insurance companies issue annuity contracts, 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)
Surrender Charges and Early Withdrawal Rules
Typical 5-year Surrender Schedule
A surrender charge is applied to any withdrawal during the 5 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 9% in Year 1, 8% in Year 2, 7% in Year 3, and 6% in Year 4, and 5% in Year 5.
At the end of the 5 year contract, you can renew for another 5 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 5 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.
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.
- 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.
How to Buy a Fixed Annuity at My Annuity Store
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 taxes 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
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.
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.
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.
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