In this guide, I’ll go over the primary differences between a fixed annuity and CD rates so you can make the best decision while shopping for the best savings plans.
We’ll Answer The Following Questions:
- Are Annuities FDIC Insured?
- Are Annuities Guaranteed?
- Who Guarantees Annuities?
- Are annuities like CDs?
- What is a CD and a Fixed Annuity?
- The Best CD Rates Today
- The Best Fixed Annuity Rates Today
- CD Rates Vs. Fixed Annuity Rates
- Do I have to pay taxes on my interest?
- How much liquidity do I have?
- How is my money protected?
- Can I create an income stream?
- Estate Planning
- Convenience
- Conclusion
- Find CD Rates and Fixed Annuity Rates By State
What is a CD and a Fixed Annuity?
What is a Certificate of Deposit (CD)?
A Certificate of Deposit (CD) is a savings product sold by banks and credit unions, offering a fixed interest rate (set by the bank) to customers wanting to earn a little more interest than personal savings accounts provide. Each CD offers a term ranging from 6 months to 10 years in length.
What is a Fixed Annuity?
A Fixed Annuity is a retirement savings plan sold by an insurance company, offering a fixed interest rate (set by the insurance company) to customers wanting to earn more interest than a Certificate of Deposit (CD). Each fixed annuity has a term ranging from 2 years to 20 years in length.
Similarities and Differences
- Both are Savings Plans.
- Both earn a guaranteed fixed amount of interest.
- Both offer safety of principal.
- Both offer access to the principal, both with penalties and without penalties.
- Both can avoid probate if set up correctly.
- Fixed Annuities offer tax-deferred growth. CDs do not.
- Fixed Annuities can provide a guaranteed lifetime income.
Certificates of Deposit vs. Fixed Annuity
The Top Fixed Annuities
Fixed annuities offer a guaranteed return for a set amount of years, similar to a CD. Guaranteed crediting rates for the terms below:
- 2 YEAR TERM: 2.15%
- 3 YEAR TERM: 2.60%
- 4 YEAR TERM: 2.60%
- 5 YEAR TERM: 3.05%
- 7 YEAR TERM: 3.25%
- Grow your money as fast as possible
- Principal protection
- Interest rate is locked for the term you select
- Tax deferred growth
- Withdraw annually without penalty
- Lump sum death benefits
- Accepts cash, 401(k), and IRA Funds
What’s The Difference Between a Fixed Annuity and CD?
| Feature | Fixed Annuity | CD |
|---|---|---|
| Who Offers | Insurance Company | Banks |
| Premium Amounts | $2,500 to $1 Million | $500 – No Maximum |
| Terms | 2 Years to 20 Years | 3 Months to 7 Years |
| Guaranteed Interest Rates | Up to 3.25% | Up to 1.25% |
| Principal Protection | Yes | Yes |
| Can Lose Money? | No | No |
| Liquid After Term | 100% | 100% |
| How Are Gains Taxed? | Tax-Deferred | Taxed Annually |
| Annual Liquidity | Up to 10% Annually | No Liquidity |
| Who Protects My Money? | Insurance Company/SGA | FDIC |
| Accepts IRA | Yes | No |
| Accepts 401(k) | Yes | No |
| Death Benefit | Lump-Sum | Lump-Sum |
Are Annuities FDIC Insured?
Fixed annuities are not FDIC insured, but they have similar protections for your money. An annuity is an insurance policy guaranteed by the insurance company’s claims-paying ability. The insurance companies are members of the state insurance guarantee associations in each state where they do business. Each state insurance guarantee association protects consumers in the unlikely event that their insurance company fails and defaults on their obligations to their consumers (limits vary per state).
For example, Georgia insures up to $250,000 of the annuity’s cash value per insured life if the insurance company becomes insolvent and can not fulfill its obligations to the insured.
The Best CD Rates Today
3 Month CD Rates
| Best 3-Month CD Rates | Rate | Term | Minimum |
|---|---|---|---|
| Spectrum Federal Credit Union | 0.50% APY | 3 Months | $500.00 |
| Service Credit Union | 0.40% APY | 3 Months | $500.00 |
| Chevron Federal Credit Union | 0.50% APY | 3 Months | $500.00 |
6 Month CD Rates
| Best 6-Month CD Rates | Rate | Term | Minimum |
|---|---|---|---|
| CommunityWide FCU | 0.70% APY | 6 Months | $500.00 |
| Lafayette Federal Credit Union | 0.70% APY | 7 Months | $500.00 |
| Spectrum Federal Credit Union | 0.50% APY | 6 Months | $500.00 |
1 Year CD Rates
| Best 12 Month CD Rates | Rate | Term | Minimum |
|---|---|---|---|
| Lafayette Federal Credit Union | 0.80% APY | 12 Months | $5,000.00 |
| CommunityWide FCU | 0.75% APY | 12 Months | $1,000.00 |
| Live Oak Credit Union | 0.75% APY | 12 Months | $2,500.00 |
2 Year CD Rates
| Best 2-Year CD Rates | Rate | Term | Minimum |
|---|---|---|---|
| Lafayette Federal Credit Union | 0.80% APY | 24 Months | $500.00 |
| Live Oak Credit Union | 0.75% APY | 24 Months | $2,500.00 |
| SILAC Fixed Annuity | 2.15% APY | 24 Months | $10,000.00 |
| Oceanview Fixed Annuity | 1.80% APY | 24 Months | $20,000.00 |
3 Year CD Rates
| Best 3-Year CD Rates | Rate | Term | Minimum |
|---|---|---|---|
| First National Bank of America | 0.90% APY | 36 Months | $1,000.00 |
| Lafayette Federal Credit Union | 1.00% APY | 36 Months | $500.00 |
| Canvas Annuity* | 2.60% APY | 36 Months | $2,500.00 |
4 Year CD Rates
| Best 4-Year CD Rates | Rate | Term | Minimum |
|---|---|---|---|
| First National Bank of America | 0.95% APY | 48 Months | $1,000.00 |
| Lafayette Federal Credit Union | 1.15% APY | 48 Months | $500.00 |
| Hiway Federal Credit Union | 1.10% APY | 48 Months | $25,000.00 |
| Nassau Fixed Annuity | 2.50% APY | 48 Months | $5,0000.00 |
5 Year CD Rates
| Best 5-Year CD Rates | Rate | Term | Minimum |
|---|---|---|---|
| First National Bank of America | 1.20% APY | 60 Months | $1,000.00 |
| Lafayette Federal Credit Union | 1.26% APY | 60 Months | $500.00 |
| Canvas Annuity* | 3.05% APY | 60 Months | $2,500.00 |
The Best Fixed Annuity Rates Today
| Company | Term | Rate | Withdrawals |
|---|---|---|---|
| SILAC | 2 Years | 2.15% | Allowed With Penalty |
| Canvas* | 3 Years | 2.60% | 10% Allowed Annually |
| Oceanview | 4 Years | 2.60% | 10% Allowed Annually |
| Canvas* | 5 Years | 3.05% | 10% Allowed Annually |
| Canvas* | 7 Years | 3.25% | 10% Allowed Annually |
CD Rates Vs. Fixed Annuity Rates
$100,000 CD versus $100,000 Fixed Annuity
| Term | CD Rate | Earnings | Annuity Rate | Earnings |
|---|---|---|---|---|
| 2-Year | 1.25% | $102,516 | 2.30% | $104,653 |
| 3-Year | 1.45% | $104,413 | 2.75% | $108,479 |
| 4-Year | 1.50% | $106,136 | 3.00% | $112,551 |
| 5-Year | 1.56% | $108,047 | 3.41% | $118,253 |
Do I have to pay taxes on my interest?
- CD: Interest earned from CD rates is taxed and paid annually as ordinary income unless the CD is set up as an IRA.
- Fixed Annuity: The money in deferred annuities grows tax-deferred which means taxes are not reported until the policy owner takes a withdrawal from the account.
Federal Taxes
Now that you understand how CDs and fixed annuities are taxed, take the interest earned from the CD above, and subtract your tax bracket percentage. Federal tax rates range from 10% to 37%, depending on your income and how you file taxes annually (Single or Joint).
In the end, you’ll earn less than 1% on your CD.
State Taxes
In addition to federal income tax, you may have to report earnings from your CD to the state as “interest income.” State taxes can range from 0% to 7.25%.
How much liquidity do I have?
- CD: Most CDs allow withdrawals, but with a penalty incurred.
- Fixed Annuity: Most annuity contracts offer a specific percentage of the contract’s value that can be withdrawn annually without a penalty. For example, a fixed annuity may allow up to 10% to be withdrawn each year without any penalties.
Best CDs and Fixed Annuities for Liquidity
| Company | Type |
|---|---|
| Canvas Flex Fund | Annuity |
| First Republic Liquid CD | CD |
| Guggenheim ProOption | Annuity |
| Citizens Access Liquid CD | CD |
How is my money protected?
- CD: Most CDs are insured up to $250,000 per CD, per bank or credit union by the FDIC.
- Fixed Annuity: Annuities are insured by the issuing insurance company. The state insurance guaranty association protects the policyholders in case the insurance company closes permanently. Each state has a maximum dollar amount that will be insured.
Can I create an income stream?
- CD: CDs are typically paid out in a lump sum, sometimes monthly interest payments, but there’s no guaranteed lifetime income.
- Fixed Annuity: There are several ways to generate an income stream from a fixed annuity. Policyholders can “sweep the interest” which means withdrawing only the interest for income while preserving the original principal. Another method is annuitizing the policy which can provide the annuity owner guaranteed payments for a fixed period of time or for life.
Estate Planning
- CD: Typically, if a designated beneficiary is assigned when purchasing a CD, that beneficiary can inherit the CD in a lump sum and avoid probate at the time of death.
- Fixed Annuity: The same goes for a fixed annuity. If a designated beneficiary (other than the estate) is assigned ahead of time, that beneficiary can avoid probate at the time of death. Depending on the annuity contract, the death benefit can be distributed as a lump sum or a series of payments.
Convenience
CD: A CD can be purchased in a matter of minutes at a local bank or credit union, which makes the process extremely easy and convenient.
Annuity: Typically, purchasing an annuity is not convenient because you have to purchase a contract from a licensed professional such as a financial advisor or an insurance agent. Some banks provide a financial professional that can sell you a fixed annuity as well.
The total annuity application process can take up to a few weeks to process, depending on where the funds are coming.
However, as time progresses, the convenience level of purchasing an annuity is improving.
For example, Canvas Annuity from Puritan Life Insurance Company of America* allows customers to purchase fixed annuities without a financial professional. Instead, the customer simply selects their annuity, fills out an application (which takes less than 10 minutes), and waits for the application to be approved. The total process time is under 48 hours.
Conclusion
CD rates offer a higher rate than a savings or checking account at a bank.
Fixed annuity rates offer a higher rate than a CD, even in banks like Wells Fargo, Bank of America, and State Farm.
Both offer the safety of the principal.
Both offer access to the principal.
Both can avoid probate if a designated beneficiary is selected ahead of time.
Annuities offer tax-deferred growth. Taxes are paid annually on CD interest rates.
CDs offer some liquidity with a possible penalty. Conversely, annuities offer some liquidity without penalties.
The FDIC insures the Certificate of Deposit. The issuing insurance company insures the annuity.
Which product is perfect for you?
Find CD Rates and Fixed Annuity Rates By State
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