Annuity vs CD: A Side-by-Side Comparison
By Hans Goldstein, EA, founder, Retirement Literacy Foundation · Updated
Admitted to practice before the IRS.
Side by side
| Bank CD | Fixed annuity / MYGA | |
|---|---|---|
| Backed by | FDIC up to $250,000 per depositor, per bank, per ownership category (FDIC, 2026) | 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| Tax on interest | Every year (Form 1099-INT) | Deferred until withdrawn (Form 1099-R) |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 federal tax on the interest before 59½ (IRS Topic 410) |
| 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.
Get the free Social Security guide.
If “Annuity vs CD: A Side-by-Side Comparison” was useful, the same plain-English treatment of Social Security is yours free. It covers the taxable-benefit thresholds, the survivor-benefit trap and the claiming-age math. We’ll also let you know when the next free class is. Nothing to buy.
The Retirement Literacy Foundation is a 501(c)(3) public charity (EIN 41-5062266). This is free public education. We don’t sell financial products and we don’t give individualized advice. We’ll email it to you. Unsubscribe any time.
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.
Sources (checked October 10, 2026): FDIC (deposit insurance limit, 2026); IRS Topic 410 and IRS Publication 575, 2025 (annuity tax rules); National Organization of Life and Health Insurance Guaranty Associations (state guaranty limits).
The backing difference is covered in detail in are fixed annuities safe.
If you are weighing more than annuities and CDs, compare the full list of alternatives to CDs.
Related
- What is a MYGA?
- MYGA vs CD spread index
- How annuities are taxed
- Annuity types, pros and cons
- All annuity education pages
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. The Foundation's work is independent of any outside professional activity. RLF sells nothing and accepts no funding from financial companies. Tax rules depend on your situation; check with a tax professional before acting.
Want to run these numbers for your own situation?
The Retirement Literacy Foundation runs free retirement classes on Social Security timing, taxes in retirement, and how to turn savings into income. No products are sold at our classes.
Hans Goldstein, EA
Founder & Executive Director · Retirement Literacy Foundation, a 501(c)(3) non-profit
Admitted to practice before the IRS
Want more information on this? Put your name below and I’ll send it over in plain English, at no cost. If your situation has a wrinkle, reply to the email and tell me what it is; I read them.
You’re reading: Annuity vs CD: A Side-by-Side Comparison
Free education. The Foundation sells nothing. By submitting you agree to receive free educational emails. We never sell or share your information and you can unsubscribe from any email.