CD Type Annuity: A CD Alternative
What is a CD-type annuity? The fact is there really is no such thing as a CD-type annuity. When you hear someone use the term CD Type annuity they are referring to a Multi-year guarantee annuity (MYGA). MYGA’s are a type of fixed annuity and are often referred to as a CD type annuity because of the similarities they share.
A certificate of deposit (CD) is issued by a bank, whereas an annuity is issued by an insurance company. A CD-type annuity, or MYGA, is essentially a CD that is issued by an insurance company instead of a bank.
Bank CDs and “CD Type” annuities both credit interest in the same way.
Just like a bank certificate of deposit (CD), a CD type annuity credits a guaranteed rate for a set number of years. The interest rate and term of the contract period are contractually guaranteed by the insurance company issuing the policy.
Today's Best CD Type Annuity (MYGA) Rates
The below table lists our best CD Type Annuity rates (MYGA)
| Years | Insurer | Annuity | Rate | AM Best | Apply | |
|---|---|---|---|---|---|---|
| 2 | 
| Oceanview | Harbourview | 3.50% | A- | |
| 3 | 
| ASPIDA | Synergy Choice | 4.30% | A- | |
| 4 | 
| Nassau | Simple Annuity | 4.35% | B++ | |
| 5 |
| ASPIDA | Synergy Choice | 4.65% | A- | |
| 6 |
| Nassau | Simple Annuity | 4.55% | B++ | |
| 7 |
| ASPIDA | Synergy Choice | 4.80% | A- | |
| 8 | 
| Oxford Life | Multi-Select | 4.30% | A | |
| 9 | 
| Oxford Life | Multi-Select | 4.10% | A | |
| 10 | 
| Atlantic Coast Life | Safe Haven | 4.60% | B++ |
Are Fixed Annuities Safe?
Although fixed annuities are not insured by the federal government, they’re considered safe because they’re insured by the issuing insurance company and, in most cases, also by state guaranty associations.
Since a fixed annuity is guaranteed by the issuing insurance company’s ability to meet its policyholder obligations – it is important to consider the life insurance company’s financial rating when buying an annuity.
Bank CDs are considered an extremely safe investment because the FDIC insures them for up to $250,000.
CDs vs Fixed Annuity
The below table compares and contrasts some of the key similarities and differences between a CD and a multi-year guarantee annuity. The main difference is an annuity’s interest grows tax-deferred while the interest you earn in a CD is taxable in the year it is earned, regardless of whether or not you spend it.
| FIXED ANNUITY | CD | |
|---|---|---|
| Issued By | Insurance Companies | Banks |
| Investment Amount | $2,000 - $1,000,000 | Essentially Any Amount |
| Investment Term | 2 years - 10 years | 3 months - 5 years |
| Interest Rates (APY) | Varies by product. | Varies by bank, term and investment amount. |
| Liquidity | Usually, 10% annually or interest earned. | Almost always accumulated interest. |
| Guarantees | Backed by Insurer & State Guaranty Associations. | Backed by the FDIC. |
| Death Benefit | May avoid probate. | Probate process required. |
How Are Annuities Taxed?
The interest you are paid on a certificate of deposits (CD) is taxed in the year in which it is received whereas interest earned from an annuity grows tax-deferred until you withdraw your funds.
You pay taxes on interest earned on a CD whether you spend it or not.
Try this annuity vs CD calculator to see the difference in the interest you will earn in a taxable vs tax-deferred savings account.
| Taxable (CDs) | Tax-Deferred (Annuity) | ||||||
|---|---|---|---|---|---|---|---|
| Dollar Amount | $100,000 | $100,000 | |||||
| Interest Rate | 5% | 5% | |||||
| Interest Earned | $5,000 | $5,000 | |||||
| Tax Bracket | 32% | 32% | |||||
| Taxes Payable | $1,600 | $0 | |||||
| After Tax Earnings | $3,400 | $5,000 | |||||
| Net After Tax Yield | 3.40% | 5% | |||||
| YEAR 2 | |||||||
| Interest Earned | $5,000 | $5,250 | |||||
| Taxes Payable | $1,600 | $0 | |||||
| After Tax Earnings | $3,400 | $5,250 | |||||
| Net After Tax Yield | 3.40% | 5.25% |
Access to Your Money
Annuities are not as flexible as CDs, and they have higher penalties for early withdrawals greater than the contract’s free withdrawal amount.
Fixed Annuities
Annuity annual free withdrawal amounts vary by company but are usually either 10% of the annuity’s account value or interest earned. A withdrawal during the initial contract period is subject to a declining surrender charge schedule.
For instance, a 5 year fixed annuity may have a surrender charge of 8%, 7%, 6%, 5%, 4%, 0% surrender charge schedule. Meaning a withdrawal above the free amount would be charged an 8% penalty in year one, a 7% in year two, 6% in three, etc.
In addition to the penalties imposed under the annuity contract, annuity owners under the age of 59½ must pay the IRS a penalty of 10 percent for early withdrawal from an annuity.
CD’s
If you close a CD earlier than scheduled, the penalty you pay is typically the interest you have earned. So you always get back at least your original deposit.
And whereas penalties for early withdrawals from a CD typically increase each time the CD is renewed, penalties for early withdrawals from an annuity are fixed.
What Happens to an Annuity When You Die?
Annuities allow a surviving spouse access to the annuity funds without penalty. However, penalties apply to CDs in the event of the death of a spouse.
Annuity beneficiaries are not required to go through probate court in the event of the annuity owner’s death to claim their benefits.
If certificates of deposit are not placed in a living or irrevocable trust, heirs must go through probate if the CD owner dies
