Annuity Vs. CD

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Annuity Vs. CD

This table is a general guide. Both annuities and CDs have variations that might change specific features (e.g., some annuities offer lifetime income, while others do not).

FeatureAnnuityCertificate of Deposit (CD)
TypeInsurance productBank deposit product
PurposeIncome for retirement, investment growthShort-term to medium-term (months to a few years)
Investment TermLong-term (usually for retirement)Can have higher fees (surrender charges, etc.).
ReturnsVaries (can be fixed, variable, or indexed)Fixed interest rate
Principal ProtectionDepends on the type (some offer protection)FDIC insured up to certain limits
LiquidityLimited (early withdrawal may incur penalties)Limited (early withdrawal may incur penalties)
TaxationTax-deferred growth (taxes due on withdrawal)Interest is taxable as it is earned
FeesCan have higher fees (surrender charges, etc.)Typically no fees, but penalties for early withdrawal
RisksDepends on type and issuing companyLow-risk, especially for insured CDs
GuaranteesPayment amounts can be guaranteedReturn is guaranteed up to FDIC limits
Best forInvestors seeking income for life or long-term growthInvestors looking for safe, short-term savings

Fixed Annuity Vs. CD

This comparison highlights the key features and differences between fixed annuities and CDs.

FeatureFixed AnnuityCertificate of Deposit (CD)
TypeInsurance productBank deposit product
PurposeSteady income, usually for retirementSafe way to store and grow savings
Investment TermLong-term (often until retirement)Short-term to medium-term (months to few years)
ReturnsPredetermined fixed interest ratePredetermined fixed interest rate
Principal ProtectionYes, by the issuing insurance companyYes, FDIC insured up to certain limits
LiquidityLimited; often penalties for early withdrawalLimited; penalties for early withdrawal
TaxationTax-deferred until withdrawals are madeInterest is taxable as it is earned
FeesSurrender charges if withdrawn earlyEarly withdrawal penalties, but typically no other fees
RisksRisk tied to the financial health of the issuerVery low, especially for insured CDs
GuaranteesFixed rate of return; sometimes guaranteed lifetime incomeFixed rate of return; principal is safe
Income StreamCan be structured to provide regular income paymentsInterest can be paid out or compounded
Best forThose seeking a stable income in retirement without exposure to market volatilitySaving money safely for a known future need, without risk

Annuity Vs. CD Calculator

Compare returns from fixed annuities and certificates of deposit.

Annuity vs. CD: Comparing Risk Levels

Historical Context of Annuities and CDs

  • Annuities: These financial products have been around since Roman times. Insurance companies offer them, many of which have existed for over a century. This longevity suggests a level of stability.
  • CDs: Offered by banks and credit unions, CDs have seen institutions come and go, especially during financial crises such as those in 2008/2009 and 2023.

Financial Institution Stability

  • Recent history has shown fewer large insurance company defaults than bank and credit union failures.
  • An analysis of financial institution stability over the last two decades indicates that annuities might be less risky than CDs regarding the likelihood of the institution defaulting.

Related Reading: Are Annuities Considered High-Risk?

Guarantee Comparisons

  • CDs: They are typically insured by the Federal Deposit Insurance Corporation (FDIC), offering consumers a certain level of protection.
  • Annuities: These are often backed by state guaranty associations, providing a similar, though not identical, level of security to the FDIC for CDs.

Size and Stability of Providers

  • Larger insurance companies tend to have a lower default risk than smaller ones.
  • The same principle applies to banks and credit unions, with larger institutions generally more stable.

Research Resources

For readers interested in further research:

  1. National Organization of Life & Health Insurance Guaranty Associations (NOLHGA) – Insolvency data: NOLHGA Insolvencies
  2. Federal Deposit Insurance Corporation (FDIC) – Failed bank list: FDIC Failed Bank List

Certificates of Deposit (CDs)

Certificates of deposit, commonly referred to as CDs, are essentially timed deposits offered by banks. Here’s what you need to know:

  • Safety First: CDs are considered one of the safest investment options. They’re insured by the FDIC up to certain limits, ensuring your principal is protected.
  • Fixed Returns: When you invest in a CD, you’re locking in a fixed interest rate for a specified period. It’s a predictable, no-surprise investment.
  • Liquidity Concerns: The catch? Your money is tied up for the duration of the CD. Early withdrawals can lead to penalties.

Related Reading: The Best CD Rates Today

Fixed Annuities

Fixed annuities are insurance products designed to provide guaranteed income. Here’s the scoop:

  • Guaranteed Income: Unlike CDs, some fixed annuities can provide income for life, ensuring you won’t outlive your savings.
  • Tax Advantages: Your money grows tax-deferred in a fixed annuity. You’ll only pay taxes upon withdrawal, which can be a significant advantage for long-term growth.
  • Flexibility: With products like the multi-year guaranteed annuity (often dubbed the “CD-like annuity”), you get the best of both worlds: the safety of a CD with the benefits of an annuity.

Related Reading: The Best Fixed Annuity Rates Today

The Multi-Year Guaranteed Annuity (MYGA)

The multi-year guaranteed annuity, or MYGA, is a unique product that combines features of both CDs and fixed annuities. Think of it as a hybrid, a “CD-like annuity.

  • Guaranteed Returns: Like a CD, a MYGA offers a fixed interest rate for a specified period.
  • Tax Benefits: The interest earned in a MYGA grows tax-deferred, similar to other fixed annuities.
  • Liquidity Flexibility: While there are still penalties for early withdrawal, MYGAs often have more lenient terms than traditional CDs.
Annuity Vs. Cd Calculator

Pros and Cons of Annuities And CDs



  • Guaranteed Income: Annuities can provide a steady stream of income for a set period, often for the remainder of your life, which can be a significant benefit for retirement planning.
  • Tax Deferral: The invested money can grow tax-deferred until withdrawal, which can be a substantial tax advantage.
  • Flexible Investment Options: Various types of annuities offer different payout structures and investment opportunities to match individual financial goals and risk tolerance.
  • Protection from Creditors: In many jurisdictions, annuities are protected from creditors, which can be crucial for individuals in professions with high liability.


  • Complexity and Fees: Annuities can be complex with multiple fee structures (like surrender charges, management fees, etc.), making it essential to understand the contract fully.
  • Limited Liquidity: Money invested in an annuity can be hard to access without incurring penalties or surrender charges.
  • Inflation Risk: Fixed annuity payments might lose purchasing power over time unless specifically structured for inflation protection.
  • Dependent on Issuer’s Financial Strength: The guarantee of payments relies on the financial strength and claims-paying ability of the issuing insurance company.

Certificates of Deposit (CDs):


  • Safety of Investment: CDs are considered very safe investments, especially when insured by the FDIC, which protects deposits up to certain limits.
  • Fixed Interest Rate: CDs offer a fixed rate of return, known in advance, which is not subject to market fluctuations.
  • Variety of Terms: Available in various term lengths (from a few months to several years), allowing for short- to medium-term financial planning.
  • No Fees or Low Fees: CDs typically don’t have management fees, and their costs are usually quite low.


  • Limited Liquidity: Money in a CD cannot be accessed before its maturity date without incurring a penalty, making it less flexible than some other savings vehicles.
  • Lower Return Potential: While safe, CDs generally offer lower potential returns compared to riskier investments.
  • Inflation Risk: The fixed return might not keep up with inflation, potentially decreasing the purchasing power of the money over time.
  • Interest Rate Sensitivity: If interest rates rise, you’re locked into a lower rate with a CD until it matures unless you incur a penalty for early withdrawal.
Cd Vs. Annuity

Which Is Right for You?

Your decision between an annuity and a CD will hinge on your financial goals:

  • Short-Term Goals: If you’re saving for a short-term goal, like buying a house in a few years, a CD might be your best bet.
  • Retirement Planning: If you’re looking for long-term growth and income during retirement, fixed annuities, especially products like MYGAs, can be a game-changer.
 Fixed Annuities Vs. Cds

Real-Life Example

Imagine Sarah, a 50-year-old looking to invest her savings. She’s wary of market volatility and wants something stable. If she opts for a CD, she’ll get a fixed return, but her money will be locked in. On the other hand, by choosing a multi-year guaranteed annuity, she can enjoy the stability of a CD with the added benefits of tax deferral and potential lifelong income.

Annuities Vs. Cd

In Summary

  • Both products provide the safety of the principal.
  • Both allow access to the principal, subject to certain conditions or surrender charges.
  • Unlike CDs, deferred annuities offer tax-deferred growth.
  • Deferred annuities allow for flexible contributions, which CDs do not.
  • Deferred annuities can avoid the costs and delays associated with probate, which CDs generally cannot unless specific conditions are met.
  • Earnings on deferred annuities can be automatically re-contributed without current taxation, a feature not available with CDs.
  • Unlike CDs, deferred annuities can provide guaranteed lifetime income without the principal first being taxed.
  • Deferred annuities may reduce taxable income that would make social security taxable, whereas CDs do not.
  • Deferred annuities can potentially offer higher yields compared to CDs.
  • Accounts in CDs insured by the FDIC are generally limited to $250,000.
  • Penalties apply for early withdrawals in both CDs and Annuities.
  • Joint ownership and beneficiary designations in CDs may avoid probate under state law.
Annuity Vs. Cd


The financial landscape is vast, and the decision between an annuity and a CD is just one of many you’ll make on your journey. Remember, it’s not about what’s “better” universally, but what’s better for you. Whether you’re leaning towards the predictable nature of certificates of deposit or the long-term benefits of fixed annuities, the key is to stay informed and choose wisely. With over a decade in the field, I’ve seen the transformative power of the right investment. Here’s to making choices today that set you up for a brighter tomorrow.

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Questions From Our Readers

Is an annuity better than a CD?

This is a difficult question, depending on your financial goals and situation. However, annuities can generally provide greater potential returns than CDs, but they also come with more risk. A CD or a fixed annuity will be good if you are looking for a safe investment with guaranteed returns.

Why are annuities better than CDs?

Annuities offer lifelong income potential and tax-deferred growth, providing long-term financial security that CDs, with their fixed terms and taxable interest, generally don’t match.

What annuity is like a CD?

A fixed annuity or multi-year guaranteed annuity (MYGA) is similar to a CD in that it offers a fixed rate of return and provides tax-deferred growth. However, unlike a CD, a MYGA has no set maturity date. This means you can hold the annuity for as long as you want and continue receiving the guaranteed income payments for life. As a result, MYGAs can be a good option for retirees looking for a guaranteed income stream that they can’t outlive.

Can an annuity be rolled into a CD?

No, an annuity cannot be rolled into a CD. Annuities and CDs are two different types of investments, each with unique features. For example, fixed annuities are tax-deferred retirement savings plans, while Certificates of Deposit are taxable savings plans. Therefore, rolling a fixed annuity into a traditional CD will cause a taxable event. However, a fixed annuity can be rolled into an IRA CD if the annuity is a qualified retirement plan.

What are CD annuity rates?

CD annuity rates refer to the interest rates offered on certificates of deposit (CDs) that function as annuities. These rates determine the amount of income the annuitant will receive during the contract period. CD annuity rates vary depending on the financial institution, the length of the CD term, and the prevailing market conditions. It’s important for individuals to compare rates to find the best option for their financial goals.

What is the difference between an annuity and a CD?

The difference between an annuity and a CD lies in their purpose and flexibility. An annuity is an insurance contract that guarantees a steady income stream in retirement, while a CD is a fixed-term deposit that earns a predetermined interest rate. Annuities offer tax advantages and lifetime payments, while CDs provide a fixed return but limited access to funds.

How can I compare the rates of return between a CD (Certificate of Deposit) and an annuity?

To compare a CD’s interest rate with an annuity’s projected return, use our taxable vs. tax-deferred vs. tax-free calculator that includes taxable, tax-deferred, and tax-free options. Enter your investment amount, time horizon, and respective rates for each instrument. Remember, CDs are usually taxable, whereas annuities and IRAs may offer tax-deferred or tax-free growth. This approach will provide a clearer picture of each investment option’s total returns after taxes.

Find CD Rates And Fixed Annuity Rates By State

Disclaimer: I may receive a small referral fee if you purchase something using a link in this guide.

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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