Quick Verdict
At every term from 3 to 10 years in May 2026, the top multi-year guaranteed annuity (MYGA) pays about 150 to 200 basis points more than the best comparable CD. Add tax deferral and the gap widens further at retirement-age tax brackets. CDs still win for money you need inside 12 months, for balances under $10,000, or when FDIC branding matters more than after-tax yield.
Certificates of deposit and fixed annuities both do one thing exceptionally well: they protect your principal and hand you a guaranteed rate for a fixed term. The products diverge on three things that shape your net result after five or ten years: the posted rate, how the IRS taxes the interest, and what happens if you need money early.
This guide lays out current 2026 rates side by side, runs the $100,000 math in two tax brackets, and gives you a decision framework based on your timeline.
Current Rates: Fixed Annuity vs. CD (May 2026)
Top-of-market rates as of May 2026, sourced from Bankrate’s CD rate survey and our live MYGA rate feed from AnnuityRateWatch.
Best 5-Year CD (May 2026)
4.40%
Top online bank, $1,000 minimum
That 150 basis point gap has been the pattern for most of 2025 and 2026. It comes from a structural difference: banks park CD deposits in short-dated instruments, while insurance carriers invest in longer-duration bonds and can pass more of that yield back to the contract holder. The tradeoff is liquidity, which we cover below.
Rate comparison across common terms
| Term | Best CD APY | Best MYGA Rate | Rate Advantage |
|---|---|---|---|
| 3 years | 4.30% | 5.75% | +1.45% |
| 5 years | 4.40% | 5.90% | +1.50% |
| 7 years | 4.25% | 6.00% | +1.75% |
| 10 years | 4.10% | 6.10% | +2.00% |
Side-by-Side Comparison
| Feature | Bank CD | Fixed Annuity (MYGA) |
|---|---|---|
| Issuer | Bank or credit union | Insurance carrier |
| Rate type | Fixed, set at purchase | Fixed, guaranteed full term |
| Taxation of growth | Taxed annually (1099-INT) | Tax-deferred until withdrawal |
| Early access | Forfeited months of interest | 10% penalty-free annually, then surrender charge |
| Safety backing | FDIC/NCUA, $250K per depositor | Carrier strength + state guaranty association |
| Compounding | After-tax reinvestment only | Full gross compounding |
| 1035 exchange at maturity | Not available | Tax-free reposition allowed |
| Minimum deposit | $500 to $1,000 | $10,000 to $25,000 typical |
| Renewal risk | May auto-roll at lower rate | Owner chooses renewal, exchange, or payout |
| Best use case | Short-term savings, income now | Multi-year accumulation, retirement money |
The $100,000, 5-Year Example
Assume $100,000 allocated for five years. The CD pays 4.40% APY with interest reinvested annually. The MYGA pays 5.90% compounding inside the contract. Taxes are paid on CD interest each year; on the MYGA, all gains are settled at the end when you withdraw.
Net balance after 5 years, 22% federal tax bracket
MYGA advantage: $9,312 more after tax. CD after-tax equivalent yield is 3.43%; MYGA compound net-of-tax equivalent is 5.07%.
Net balance after 5 years, 32% federal tax bracket
MYGA advantage: $8,538 more after tax. The higher your bracket, the more the deferral matters. Many retirees move into lower brackets after leaving W-2 income, which amplifies the benefit further.
Run the same inputs with your own numbers using our CD vs. annuity calculator.
How Taxes Work
CDs: The bank issues you a 1099-INT every January for the interest credited the prior year. You owe federal and (usually) state tax on that interest regardless of whether you withdrew it. This forces a 25 to 40 percent tax haircut on your reinvested interest every year.
Fixed annuities: No 1099 while the contract is accumulating. Growth compounds at the full gross rate. When you eventually withdraw, gains are taxed as ordinary income at your rate in that year, not the year the interest was credited. This is the same tax deferral mechanism that applies to traditional IRAs and 401(k)s.
If you are 70, retired, and pulling interest from a MYGA in a 12% bracket instead of a 22% bracket (where you were working), you keep a meaningfully larger share of every dollar earned.
Safety: FDIC vs. State Guaranty Associations
CDs are insured by the FDIC (banks) or NCUA (credit unions) up to $250,000 per depositor, per institution, per ownership category. If the bank fails, the federal government covers you within that limit, usually within days.
Fixed annuities are backed by two things. First and primarily, the financial strength of the issuing insurance carrier. MyAnnuityStore only quotes annuities from carriers rated A- or better by AM Best. Second, every state maintains a guaranty association that covers annuity contracts if the carrier becomes insolvent. Coverage limits vary by state, typically $100,000 to $250,000 in present value.
Functionally, both products have never caused policyholders to lose principal in practice. But the mechanism is different, and the FDIC logo feels more familiar to most savers. That emotional comfort has a real financial cost: about $8,000 to $10,000 in this comparison.
Liquidity and Early Withdrawals
CD early withdrawal: Most banks charge a penalty of three to twelve months of interest. On a $100,000 CD yielding 4.40%, a 6-month penalty is roughly $2,200. You can withdraw the full balance, just minus the penalty. No-penalty CDs exist but typically pay 0.50% to 1.00% lower.
MYGA early withdrawal: Most contracts allow you to take out 10% of the account value each year with no penalty. Above 10%, surrender charges apply on a declining schedule – commonly 9% in year one, stepping down to 0% at the end of the term. Most MYGAs also waive surrender charges for nursing-home confinement or terminal illness.
For money you are fairly sure you will not touch for five or more years, the MYGA liquidity structure is actually more flexible than people assume. The 10% annual free-withdrawal provision gives you meaningful access, and at maturity you can do a 1035 exchange into a new contract without triggering taxes.
Who Each Is Best For
Choose a CD when:
- You need access to funds in less than 12 months
- Your balance is under $10,000 (below most MYGA minimums)
- You want interest payments deposited to checking each quarter
- The FDIC seal gives you peace of mind you cannot get from a state guaranty association
- You are under age 59½ and want no possibility of the 10% early-withdrawal penalty that applies to annuity gains
Choose a fixed annuity (MYGA) when:
- You are planning for retirement and will not need the money for 3+ years
- You are in a federal tax bracket of 22% or higher today
- You expect to be in a lower tax bracket when you withdraw (most retirees are)
- You want the highest guaranteed rate available on principal-protected money
- You want the option to convert to guaranteed lifetime income at maturity
3-Step Decision Framework
- Define your timeline. If you need the money inside one year, stop here and use a CD or high-yield savings account. If your horizon is three years or more, continue.
- Compare after-tax yields, not nominal rates. A 4.40% CD taxed at 22% credits 3.43% net. A 5.90% MYGA compounding tax-deferred earns the full 5.90% until you withdraw. Run your own numbers in our calculator.
- Confirm safety and fine print. For CDs, verify FDIC/NCUA coverage limits and the early withdrawal penalty. For MYGAs, check the carrier’s AM Best rating, the surrender schedule, the free-withdrawal amount, and whether your state guaranty association covers your full balance.
Frequently Asked Questions
Do MYGA rates actually pay more than CD rates?
Yes, consistently. At every term from 3 to 10 years in May 2026, top-quoted MYGAs pay 140 to 200 basis points more than top online-bank CDs. Compare today’s MYGA rates against your bank’s 5-year CD to confirm.
Can I lose money in a fixed annuity?
Your principal and declared interest are guaranteed for the full term if you hold the contract to maturity, backed by the insurance carrier and your state guaranty association. If you surrender early, surrender charges and market value adjustments can reduce your payout. No carrier rated A- or better by AM Best has failed to pay contract holders in the past 30 years.
Will I owe taxes every year on my MYGA?
No. Interest compounds tax-deferred inside the contract. You receive no 1099 while the MYGA is accumulating. Taxes come due only when you withdraw interest, surrender the contract, or annuitize. Gains are taxed as ordinary income in the year of withdrawal.
What happens if I need my money before the MYGA term ends?
Most contracts allow 10% annual penalty-free withdrawals starting in year one or year two. Above that, surrender charges apply on a declining schedule, typically starting at 8 to 9 percent in year one and dropping to zero at the end of the term. Many contracts also waive surrender charges for nursing-home confinement, terminal illness, or disability.
Are fixed annuities FDIC insured?
No. Annuities are insurance contracts, not bank deposits. They are backed by the financial strength of the issuing carrier and by your state’s guaranty association, which covers annuities if the carrier becomes insolvent. Coverage limits vary by state, typically $100,000 to $250,000 in present value per contract owner. See our full are fixed annuities FDIC insured explainer.
What happens when my MYGA term ends?
You have four options: withdraw the full balance as cash (taxable), renew with the same carrier at then-current rates, do a tax-free 1035 exchange into a new MYGA or fixed index annuity with a different carrier, or annuitize the contract into a stream of guaranteed income payments. CDs offer only the first two options, and auto-renewal often locks you into below-market rates.
Should I choose a MYGA or CD if I am under 59½?
CDs do not trigger the IRS 10% early-withdrawal penalty that applies to annuity gains taken before age 59½. If there is any chance you will need the interest portion of your MYGA before 59½, a CD avoids that penalty. Principal in a MYGA can be returned without the 10% penalty; only the gains are affected.
Sources and Citations
- FDIC Deposit Insurance – coverage limits and rules
- Bankrate CD Rate Survey – current national CD rates
- National Organization of Life & Health Insurance Guaranty Associations (NOLHGA) – state guaranty coverage
- IRS Publication 575 – taxation of annuity distributions
- National Association of Insurance Commissioners – annuity regulation and consumer guides
Comparing a CD against an annuity is the second question. The first is whether you should buy an annuity at all: should I buy an annuity.
