The Difference Between Fixed Annuity and CDs

Shawn Plummer

CEO, The Annuity Expert

When it comes to saving for retirement, there are a lot of options to choose from. Two popular choices are Certificates of Deposit (CDs) and Fixed Annuities. Both have their pros and cons, so how do you know which is the right choice for you? In this guide, we will compare CD rates with fixed annuity rates and help you decide which is the best option for your needs!

Earn The Highest Interest Rates On Savings Today

Fixed annuities are almost identical to Certificates of Deposit (CDs) accounts and provide higher interest rates and penalty-free withdrawals for income.

TermInsurance CompanyInterest Rate
N/AUFB Bank Savings Account5.02%
N/AUFB Bank Money Market5.02%
12 MonthsWestern Alliance Bank CD5.01%
36 MonthsOceanview Fixed Annuity5.00%
48 MonthsAmerico Fixed Annuity5.05%
5 YearsAspida Fixed Annuity5.50%
6 YearsAmerican National Fixed Annuity5.45%
10 YearsAmerican National Fixed Annuity5.45%
*Fixed annuities are only for saving money to use in retirement.

Disclaimer: This is a review. The Annuity Expert is not associated with a bank or credit union. However, fixed annuities are sold at most financial institutions. We aim to help you find the highest interest rates for your retirement savings. We may receive a small referral fee if you purchase something using a link in this article.

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What is a Certificate of Deposit (CD)?

A Certificate of Deposit (CD) is a type of savings account offered by banks and credit unions that gives a specified interest rate to customers who want to earn more than they would by keeping their money in a personal savings account. Each CD has a duration ranging from 6 months to 10 years.

What is a Fixed Annuity?

A fixed annuity is a retirement savings plan sold by a life insurance company that offers a predetermined interest rate to clients who want to earn more interest than they could with a Certificate of Deposit (CD). Each fixed annuity has a duration ranging from two years to twenty years.

Similarities and Differences

  • Both are savings plans.
  • Both earn a guaranteed fixed amount of interest.
  • Both offer the safety of the 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.

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Certificates of Deposit vs. Fixed Annuity

The Top Fixed Annuities

  • 2-YEAR TERM: 4.60%
  • 3-YEAR TERM: 5.00%
  • 4-YEAR TERM: 5.10%
  • 5-YEAR TERM: 5.40%
  • 6-YEAR TERM: 5.45%
  • 7-YEAR TERM: 5.45%
  • Grow your money as fast as possible
  • Principal protection
  • The 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 a CD?

FeatureFixed AnnuityCD
Who OffersInsurance CompanyBanks
Premium Amounts$2,500 to $1 Million$500 – No Maximum
Terms2 Years to 20 Years3 Months to 7 Years
Guaranteed Interest RatesUp to 5.70%Up to 5.50%
Triple CompoundingYesNo
Principal ProtectionYesYes
Can You Lose Money?NoNo
Liquid After Term100%100%
How Are Gains Taxed?Tax-DeferredTaxed Annually
Annual LiquidityUp to 10% AnnuallyNo Liquidity
Who Protects My Money?Insurance Company/SGAFDIC
Accepts IRAYesNo
Accepts 401(k)YesNo
Death BenefitLump-SumLump-Sum

Are Annuities FDIC Insured?

Fixed annuities are not FDIC insured but 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 where they do business. Each state insurance guarantee association protects consumers if the insurance company fails and defaults on its obligations to its 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

The following banks and credit unions have the highest CD rates for three months.

Best 3-Month CD RatesRateTermMinimum
Synchrony Bank2.25% APY3 Months$0.00
Popular Direct4.10% APY3 Months$10,000.00
TIAA Bank4.00% APY3 Months$1,000.00
TotalDirect Bank5.01% APY3 Months$25,000.00
Umbrella Bank3.75% APY3 Months$1,000.00
Ally2.00% APY3 Months$0.00
Bethpage Federal Credit Union2.25% APY3 Months$50.00
Citibank4.00% APY3 Months$500.00
Teachers Federal Credit Union5.00% APY3 Months$1,000.00

6-Month CD Rates

The following banks and credit unions have the highest CD rates for six months.

Best 6-Month CD RatesRateTermMinimum
CommunityWide FCU4.35% APY6 Months$1.000.00
PenFed Credit Union2.70% APY6 Months$1,000.00
Synchrony Bank4.25% APY6 Months$0.01
Popular Direct4.55% APY6 Months$10,000.00
First Internet Bank4.52% APY6 Months$1,000.00
Quontic Bank3.75% APY6 Months$500.00
Live Oak4.50% APY6 Months$2,500.00
Marcus by Goldman Sachs3.90% APY6 Months$500.00
NASA Federal Credit Union4.75% APY9 Months$10,000.00
Bank5 Connect4.75% APY6 Months$1,000.00
Vio Bank4.50% APY6 Months$500.00
Prime Alliance Bank5.00% APY6 Months$500.00
Jovia Financial Credit Union5.00% APY8 Months$100.00
TotalDirectBank5.01% APY6 Months$25,000.00

1-Year CD Rates

The following banks and credit unions have the highest CD rates for 12 months.

Best 12-Month CD RatesRateTermMinimum
Bread Savings5.05% APY12 Months$1,500.00
First National Bank of America4.40% APY12 Months$1,000.00
CommunityWide FCU4.70% APY12 Months$1,000.00
PenFed Credit Union4.60% APY12 Months$1,000.00
Marcus by Goldman Sachs4.50% APY12 Months$500.00
Synchrony Bank4.50% APY12 Months$0.00
Popular Direct5.00% APY12 Months$10,000.00
First Internet Bank of Indiana5.06% APY12 Months$1,000.00
Alliant Credit Union5.00% APY12 Months$1,000.00
Bethpage Federal Credit Union5.00% APY12 Months$50.00
Umbrella Bank4.20% APY12 Months$1,000.00
Limelight Bank5.15% APY12 Months$1,000.00
Forbright Bank5.25% APY12-17 Months$1,000.00
CFG Bank5.15% APY12 Months$500.00

2-Year CD Rates

The following banks and credit unions have the highest CD rates for 24 months.

Best 2-Year CD RatesRateTermMinimum
Synchrony Bank4.30% APY24 Months$0.01.00
First National Bank of America4.40% APY24 Months$1,000.00
Pentagon Federal Credit Union4.45% APY24 Months$1,000.00
Marcus by Goldman Sachs4.35% APY24 Months$500.00
Lafayette Federal Credit Union4.47% APY24 Months$500.00
Credit Human5.50% APY24 Months$500.00
Pen Air Federal Credit Union5.05% APY28 Months$500.00

3-Year CD Rates

The following banks and credit unions have the highest CD rates for 36 months.

Best 3-Year CD RatesRateTermMinimum
Bread Savings4.50% APY36 Months$1,500.00
Pentagon Federal Credit Union4.10% APY36 Months$1,000.00
Synchrony Bank4.30% APY36 Months$0.01%
First National Bank of America4.40% APY36 Months$1,000.00
Marcus by Goldman Sachs4.30% APY36 Months$500.00
Discover4.30% APY36 Months$2,500.00
Alliant Credit Union4.45% APY36 Months$1,000.00
CFG Bank4.60% APY36 Months$500.00
Popular Direct4.40% APY36 Months$10,000.00
Quontic Bank4.30% APY36 Months$500.00
Barclays4.30% APY36 Months$0.00
Randolph-Brooks Federal Credit Union4.60% APY36 Months$20,000.00
BMO Harris4.50% APY36 Months$1,000.00
Credit Human5.50% APY24-35 Months$500.00
First Internet Bank of Indiana4.54% APY36 Months$1,000.00

4-Year CD Rates

The following banks and credit unions have the highest CD rates for 48 months.

Best 4-Year CD RatesRateTermMinimum
Bread Savings4.35% APY48 Months$1,500.00
NASA Federal Credit Union4.90% APY49 Months$10,000.00
PenFed Credit Union3.90% APY48 Months$1,000.00
Synchrony Bank4.30% APY48 Months$0.01
First National Bank of America4.35% APY48 Months$1,000.00
Marcus by Goldman Sachs4.00% APY48 Months$500.00
Credit Human4.65% APY36-59 Months$500.00
All In Credit Union4.80% APY48 Months$1,000.00
University Federal Credit Union5.00% APY48 Months$1,000.00

5-Year CD Rates

The following banks and credit unions have the highest CD rates for 60 months.

Best 5-Year CD RatesRateTermMinimum
Bread Savings4.25% APY60 Months$1,500.00
Popular Direct4.45% APY60 Months$10,000.00
Synchrony Bank4.30% APY60 Months$0.00
PenFed Credit Union3.90% APY60 Months$1,000.00
First National Bank of America4.35% APY60 Months$1,000.00
Marcus by Goldman Sachs3.80% APY60 Months$500.00
Discover4.10% APY60 Months$2,500.00
Connexus Credit Union3.51% APY60 Months$5,000.00
Barclays4.30% APY60 Months$0.00
BMO Harris4.50% APY59 Months$5,000.00
Seattle Bank4.70% APY60 Months$1,000.00
Credit Human4.65% APY60 Months$500.00
First Internet Bank of Indiana4.49% APY60 Months$1,000.00
All In Credit Union5.00% APY60 Months$1,000.00

The Best Fixed Annuity Rates Today

CompanyTermRateWithdrawals
Oceanview2 Years2.85%10% Allowed Annually
Canvas3 Years4.60%10% Allowed Annually
Canvas5 Years4.60%10% Allowed Annually
Canvas7 Years4.60%10% Allowed Annually

CD Rates Vs. Fixed Annuity Rates

$100,000 CD versus $100,000 Fixed Annuity

TermCD RateEarningsAnnuity RateEarnings
2-Year1.25%$102,5162.30%$104,653
3-Year1.45%$104,4132.75%$108,479
4-Year1.50%$106,1363.00%$112,551
5-Year1.56%$108,0473.41%$118,253
*Gross Earnings Before Taxes

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 like 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

CompanyType
Canvas Flex FundAnnuity
First Republic Liquid CDCD
Guggenheim ProOptionAnnuity
Citizens Access Liquid CDCD

How is my money protected?

  • CD: Most CDs are insured for 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?

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 from.

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.

What Do My Beneficiaries Receive When I Die?

Like CDS, fixed annuities offer a simple standard death benefit that is the annuity’s accumulation value or the minimum guaranteed surrender value, whichever is greater. 

Helpful tip: If you want to leave money to your beneficiaries, life insurance might be a better option for you. In some cases, you don’t need to take a medical exam. Our free tool is the best place to get life insurance quotes. Coverage starts at $9.37 per month.

Conclusion

In the end, both CDs and annuities have their pros and cons, but for those looking for a higher yield than what is available with a bank savings or checking account, fixed annuities are worth considering. Requesting a quote is easy – just fill out the form on this page and we’ll be in touch to help you find the best rate for your needs. Thanks for reading!

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Frequently Asked Questions

Is an annuity better than a CD?

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

Why are annuities better than CDs?

When it comes to saving for retirement, there are various options to choose from. Two of the most popular choices are annuities and CDs. So, which is the better option? Annuities have a few advantages that make them more attractive than CDs. First, annuities offer tax-deferred growth. This means that you can grow your money without paying taxes on the gains until you withdraw the money at retirement.

On the other hand, CD rates are subject to taxation every year. In addition, annuities provide guaranteed income for life. This can be a valuable benefit for retirees looking for a way to insure against the risk of outliving their savings. On the other hand, CDs do not offer this type of guarantee. So, when it comes to choosing between annuities and CDs, annuities come out ahead regarding both potential return and security.

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, an MYGA does not have a set maturity date. This means that you can hold the annuity for as long as you want and continue to receive 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 I lose money in a fixed annuity?

Fixed annuities are among the safest types of investments, but they are not without risk. The most common types of risk associated with fixed annuities are interest rate and credit risk. Interest rate risk is the risk that the interest rate on the annuity will decline after the guaranteed term, which would reduce the value of your investment. Credit risk is the risk that the insurance company will not be able to make the guaranteed payments. While both of these risks are real, they are relatively small compared to the risks associated with other types of investments, such as stocks.

Are there 5-year annuities?

Yes, there are 5-year annuities. A 5-year annuity is a fixed annuity that offers a guaranteed rate of return for five years. After the five-year term, the interest rate will reset based on current market conditions.

Do banks offer annuities?

Yes, some banks offer annuities. However, not all banks are licensed to sell annuities, so it’s essential to check with your bank to see if they offer this type of investment.

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, and they each have their 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.

Is there a limit on an annuity?

There is no limit on how much you can contribute to a non-qualified annuity; however, qualified annuities, such as IRAs and 401(k)s, have contribution limits set by the IRS.

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

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

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

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