Comparing Annuities and CDs

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Key Comparisons Of Annuities And CDs


  • Annuities: Typically offer higher potential returns, especially for long-term investments. MYGAs (Multi-Year Guaranteed Annuities) provide guaranteed interest rates, often surpassing those of CDs.
  • CDs: Offer fixed, guaranteed returns but generally lower than annuities. Suitable for short-term savings goals.

Tax Implications

  • Annuities: Grow tax-deferred, meaning you do not pay taxes on the earnings until you withdraw the money. This allows for compounded growth over time.
  • CDs: Interest is taxed annually, reducing the compounding effect.

Liquidity and Penalties

  • Annuities: Higher surrender charges may apply if funds are withdrawn early. However, some annuities offer more flexibility with penalty-free withdrawals.
  • CDs: Have early withdrawal penalties that can vary depending on the term and issuing bank. Typically less flexible than annuities.

Risk and Safety

  • Annuities: Backed by insurance companies, they offer varying levels of risk depending on the type (fixed, variable, indexed). MYGAs provide principal protection and guaranteed returns.
  • CDs: FDIC-insured up to $250,000 per depositor, per bank, offering high safety and guaranteed return of principal and interest.


  • Annuities: Ideal for long-term financial goals, retirement planning, and those seeking guaranteed lifetime income.
  • CDs: Best suited for short-term savings needs, risk-averse investors, and those seeking guaranteed returns without complexity.
Comparing Annuities And Cds

What We Recommend

Choosing between annuities and CDs depends on your financial goals, risk tolerance, and investment horizon. Annuities, particularly MYGAs, are beneficial for long-term growth and retirement income, while CDs offer safe, short-term investment options with guaranteed returns.

Contact us for free advice or a quote on which investment product best suits your financial needs.

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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.

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.

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

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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