Fixed Annuity vs. CD
The best 5-year fixed annuity rate available today is 6.15% from Farmers Life, compared with 4.45% for the best 5-year CD from BTG Pactual Bank — a difference of 1.70%, or $10,452 more interest on $100,000 over five years.
Compare today's rates and earnings between fixed annuities (MYGAs) and CDs
Earnings are based on the investment amount. Default table earnings reflect a $100,000 investment amount.
| Fixed Annuity | CD | |||||
|---|---|---|---|---|---|---|
| Term | Insurer | MYGA Rate | Earnings | Bank | CD Rate | Earnings |
Do fixed annuities pay more than CDs?
Yes. Today’s best 5-year fixed annuity (MYGA) rate is 6.15% from Farmers Life, compared to 4.45% for the best 5-year CD from BTG Pactual Bank. Fixed annuities typically pay 1 to 2 percentage points more than CDs of the same term, because insurers invest premium in longer-duration corporate bonds while banks price deposits against short-term funding costs.
The pattern holds across terms. At three years the best annuity pays 6.00% against 4.50% for the best CD, and at five years the spread is 1.70%. The trade-off is liquidity, not safety.
How much would an annuity pay?
On $100,000 held for five years, today’s best fixed annuity earns $34,772 in interest versus $24,320 for the best 5-year CD — a difference of $10,452 before tax. A rate gap of one to two percentage points compounds into roughly 30% to 45% more total interest over a five-year term.
Both figures assume the money is held to term with no withdrawals and interest compounds annually. Change the investment amount in the table above and every figure recalculates, which is worth doing: several carriers pay a higher rate above $100,000, so the amount you invest can change the rate itself, not just the total.
How are fixed annuities and CDs taxed differently?
CD interest is taxable in the year it is earned, even if you never withdraw it, while fixed annuity interest is tax-deferred until you take the money out.1 In a taxable account this is the largest practical difference between the two products, because a CD loses part of its interest to tax every year while an annuity keeps compounding on the full balance.
Tax deferral is not tax elimination. Withdrawals are taxed as ordinary income, not capital gains, and gains withdrawn before age 59½ are generally subject to an additional 10% IRS penalty.2 If you expect to be in a materially higher tax bracket when you withdraw, deferral can work against you.
What happens if you need the money early?
Most fixed annuities let you withdraw the interest earned or 10% of the contract value each year without penalty, while most CDs allow no partial withdrawal at all and charge three to twelve months of interest to break the term early. Fixed annuities also carry a 10% IRS penalty on gains withdrawn before age 59½, which makes them a poor fit for money you may need before retirement.2
Neither product is built for money you may need on short notice. For a true emergency fund, a high-yield savings account remains the right instrument even at a lower rate.
Which is safer, a CD or a fixed annuity?
CDs are insured by the FDIC, or the NCUA at credit unions, up to $250,000 per depositor per institution.3 Fixed annuities are not FDIC insured; they are backed by the claims-paying ability of the issuing insurance company, with a state guaranty association as a backstop if that insurer fails.4 Both have very low historical loss rates, but a CD’s guarantee comes from the federal government while an annuity’s comes from a private company’s balance sheet, which is why carrier financial strength matters more than the headline rate.
In practice this is why carrier financial strength matters more than the headline rate. The rates on this page are limited to carriers rated B+ or better by AM Best. If a rate you have seen elsewhere does not appear here, it may be from a carrier that did not meet that standard. You can review every carrier we place on our annuity companies page.
A fixed annuity is one of several annuity types, and it is the only one directly comparable to a CD. If you are weighing market-linked growth, compare fixed index annuity rates, and if you want guaranteed lifetime income, look at income annuities, since each carries different trade-offs. Browse today’s fixed annuity rates, all annuity rates, or run the numbers with our annuity calculators.
When is a CD better than a fixed annuity?
A CD is the better choice if you are under age 59½ and may need the money before then, if your time horizon is under two years, or if your deposit is under $250,000 and FDIC insurance is your priority. Fixed annuity terms start at two years, so for any shorter horizon a CD is the only one of the two products available at all.
Fixed annuity vs. CD at a glance
The two products are built for different jobs. This is where they differ in practice.
Feature comparison
| Feature | Fixed Annuity (MYGA) | Certificate of Deposit |
|---|---|---|
| Issued by | Insurance companies | Banks and credit unions |
| Typical term | 2 to 10 years | 3 months to 5 years |
| Today’s best rate | 6.15% (5-year) | 4.45% (5-year) |
| Investment range | Typically $2,500 to $3,000,000, varies by carrier | Any amount above the bank’s minimum |
| Tax on interest | Deferred until withdrawn | Taxable annually as earned |
| Access before term ends | Penalty-free allowance, often 10% per year; surrender charges beyond it; 10% IRS penalty on gains before age 59½ | Generally none; early withdrawal forfeits interest and closes the account |
| Backed by | Claims-paying ability of the insurer, with a state guaranty association backstop | FDIC or NCUA insurance to applicable limits |
| Rate guaranteed for | The full term selected | The full term selected |
Annuity rates supplied by AnnuityRateWatch, updated daily. CD rates sourced via Bankrate. Compound-interest products only, from carriers rated B+ or better by AM Best. Rates vary by state, age, and premium amount.
Not sure which fits your situation?
We place annuities with 90+ carriers and we will tell you when a CD is the better answer. No forms, no follow-up calls you did not ask for.
Frequently Asked Questions
Is a fixed annuity better than a CD?
Neither is better in the abstract. Today a 5-year fixed annuity pays 6.15% against 4.45% for a 5-year CD, and annuity interest is tax-deferred. A CD is the better choice if you are under 59½ and may need the money, if your horizon is under two years, or if FDIC insurance is the deciding factor for you.
Are fixed annuities FDIC insured?
No. Fixed annuities are not FDIC insured and are not bank deposits. They are backed by the claims-paying ability of the issuing insurance company, with a state guaranty association providing a backstop if the insurer fails. Coverage limits vary by state.
What is a MYGA?
A multi-year guaranteed annuity. It pays a fixed interest rate guaranteed for a set term, which makes it the annuity most directly comparable to a CD. The terms fixed annuity, fixed rate annuity, MYGA, and single premium deferred annuity are often used interchangeably.
Can I lose money in a fixed annuity?
Your principal is not exposed to market risk, and the rate is guaranteed for the term. You can receive back less than you put in if you surrender the contract early and surrender charges exceed the interest credited, or if you withdraw gains before age 59½ and incur the IRS penalty. The remaining risk is the financial failure of the issuing insurer.
What happens at the end of the term?
You can withdraw the money, roll it into a new fixed annuity, convert it to income, or let it renew. Contracts generally renew automatically at a new rate if you do nothing, so it is worth noting your maturity date. We contact clients ahead of maturity rather than letting a contract roll silently.
Why do some sites show higher annuity rates than this page?
Two common reasons. First, some listings include simple-interest contracts at their stated rate; simple interest does not compound, so the effective annual yield is lower than the number shown. The rates on this page are compound-interest products only, so they compare directly with a CD’s APY. Second, we only list carriers rated B+ or better by AM Best, and we exclude carriers we are not willing to place.
Compare 6.15% annuity rates against today’s CDs
Rates from 90+ carriers, updated daily. Talk to a licensed specialist, not a call center.
Sources
My Annuity Store cites primary sources and regulator publications. Rate data is supplied by AnnuityRateWatch and Bankrate; we do not independently collect third-party rate data.
Disclaimer: This page is for informational and educational purposes only and is not a recommendation to purchase any product. Annuity guarantees are subject to the claims-paying ability of the issuing insurance company. Annuities are not FDIC insured, are not bank guaranteed, and are not a deposit product. Rates and availability vary by state, age, and premium amount and can change without notice. My Annuity Store does not provide tax or legal advice; consult your own tax professional or attorney regarding your situation.
