Retirement Literacy Foundation · Annuity Education

Annuity vs CD: A Side-by-Side Comparison

By Hans Goldstein, founder, Retirement Literacy Foundation · Updated October 8, 2026

Short answer: A CD is a bank deposit, FDIC insured, with interest taxed every year. A fixed annuity or MYGA is an insurance contract with a guaranteed rate, interest that is tax-deferred until withdrawn, longer terms and steeper early-exit costs. Neither is better in general; the tax bracket you are in now versus later, your time horizon and your need for access decide it.

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Side by side

	Bank CD	Fixed annuity / MYGA
Backed by	FDIC up to $250,000 per depositor, per bank, per ownership category	The insurer, plus state guaranty association up to its limits
Tax on interest	Every year (Form 1099-INT)	Deferred until withdrawn (Form 1099-R)
Early exit	Loss of some interest	Surrender charge, possible market value adjustment, 10% extra tax before 59½
Terms	Months to 5 years	Often 3 to 10 years
At death	Interest already taxed; principal passes	Untaxed interest is taxable to the beneficiary

When tax deferral helps

Deferral matters most if you are in a higher bracket now than you expect to be when you withdraw, or if yearly CD interest would push you over an IRMAA line or make more of your Social Security taxable. It matters little inside an IRA, which is already tax-deferred.

When a CD fits better

You may need the money within a few years.
You want FDIC insurance specifically.
You are under 59½ and might need to withdraw.
You are in a low bracket now and will be in a higher one later.

Comparing rates fairly

Compare the same term, and compare after-tax results over the whole period. The RLF's MYGA vs CD spread index tracks the gap between published MYGA rates and CD and Treasury yields. More on how a MYGA works.

Common questions

Is an annuity safer than a CD?

They are protected differently: a CD by FDIC insurance up to its limits, an annuity by the insurer and, up to limits, the state guaranty association. Both are generally considered low risk for principal.

Do annuities pay more than CDs?

Sometimes, especially for longer terms, but not always. Compare the same term and the after-tax result, and include early-exit costs.

Is annuity interest taxed like CD interest?

Both are taxed as ordinary income. The difference is timing: CD interest is taxed every year, annuity interest when it is withdrawn.

More on annuities: How Do Annuities Work? A Plain-English Guide · How Are Annuities Taxed? · Inherited Annuity Taxes · 1035 Exchange · Annuities in an IRA · Annuity Surrender Charges and How to Get Out of an Annuity · Types of Annuities and Their Pros and Cons · What Is a MYGA? Multi-Year Guaranteed Annuities Explained · Fixed Index Annuity Explained · Immediate Annuity (SPIA) Explained · Variable Annuity Explained

Education only; nothing is sold here and no product is recommended. Hans Goldstein, founder of the Retirement Literacy Foundation, is also a licensed California insurance producer (#4273294). Tax rules depend on your situation; check with a tax professional before acting.