MYGA Annuities are often referred to as a CD Type annuity because of the similarities they share. CD Type annuities pay a set interest rate for a specified period of time and typically allow you to take your interest payments monthly.
CD Type Annuity: A CD Alternative
A CD-type annuity 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 of 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 Rates
The below table lists our best CD Type Annuity rates. Compare today’s best CD rates or the best-fixed annuity rates here.
| Term | Insurer | Company Review | Rate | Annuity | AM Best | Application |
|---|---|---|---|---|---|---|
| 2 Years | 
| Upstream Life | 5.25% | Secure Legacy | B- | Apply |
| 3 Years |  | Aspida | 5.00% | Synergy Choice | A- | Apply |
| 4 Years |
| Upstream Life | 5.70% | Secure Legacy | B- | Apply |
| 5 Years |  | Farmers Life | 5.40% | Safeguard Plus | B++ | Apply |
| 6 Years | 
| Oxford Life | 5.60% | Multi-Select | A | Apply |
| 7 Years | 
| Ibexis | 5.70% Simple | MYGA Plus | A- | Apply |
| 8 Years | 
| EquiTrust | 5.10% | Certainty Select | B++ | Apply |
| 9 Years |
| Oxford Life | 5.10% | Harbourview 9 | A | Apply |
| 10 Years | | Farmers Life | 5.45% | Safeguard Plus | B++ | Apply |
Can You Lose Money In a CD Type Annuity?
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 CDs and CD Type Annuities. 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.
| FEATURES | 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 Tax-Deferral Works in Annuities
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 the interest your CD earns in the year in which it is earned whether you spend it or not.
| Federal Tax Bracket | ||||
|---|---|---|---|---|
| 22.00% | 24% | 32% | 35% | |
| Tax-deffered annuity rate | You'd have to earn this rate in a taxable investment to match the earnings in your annuity: | |||
| 3.50% | 4.49% | 4.61% | 5.15% | 5.38% |
| 4.00% | 5.13% | 5.26% | 5.88% | 6.15% |
| 4.50% | 5.77% | 5.92% | 6.62% | 6.92% |
| 5.00% | 6.41% | 6.58% | 7.65% | 7.69% |
| 5.50% | 7.05% | 7.24% | 8.09% | 8.46% |
| 6.00% | 7.69% | 7.89% | 8.82% | 9.23% |
Can I access my money in a CD Type Annuity?
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. This means a withdrawal above the free amount would be charged an 8% penalty in year one, 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.
Frequently Asked Questions
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.
