CDs vs Annuities: Pros, Cons & Which Pays More (2026)

Quick Answer: CDs and fixed annuities are both low-risk savings tools, but they differ in important ways. CDs offer FDIC insurance and full liquidity at maturity. Fixed annuities — particularly MYGAs — typically offer higher rates, tax-deferred growth, and full principal protection, making them worth comparing side by side before you park retirement savings anywhere.

Understanding CDs and Annuities as Retirement Tools

When retirees look for a safe place to earn interest without taking market risk, two options come up most often: bank certificates of deposit and fixed annuities. Both protect your principal. Both pay a defined interest rate. Both appeal to people who are done gambling with retirement savings.

But they are not interchangeable. The differences — in rate, tax treatment, liquidity, and coverage — can meaningfully affect how much income you receive and how efficiently your savings grow. Understanding those differences is the starting point for making a well-informed decision.

What Is a CD?

A certificate of deposit is a time deposit offered by banks and credit unions. You deposit money for a fixed term — typically three months to five years — and receive a fixed interest rate in return. At maturity, you get your principal back along with the accumulated interest.

The defining feature of a CD is FDIC insurance. The Federal Deposit Insurance Corporation guarantees deposits up to $250,000 per depositor per institution. If your bank fails, your CD principal and earned interest are protected up to that limit. This is a genuine backstop backed by the full faith and credit of the U.S. government.

In 2026, competitive 5-year CD rates from online banks and credit unions range from approximately 4.0% to 4.8%. A $100,000 CD at 4.5% generates $375 per month in interest — not bad, but below the rates available on comparable fixed annuity products.

What Is a Fixed Annuity (MYGA)?

A multi-year guaranteed annuity (MYGA) is an insurance product that functions similarly to a CD: you deposit a lump sum, agree to a fixed term, and receive a guaranteed interest rate for the entire term. Your principal is fully protected and returned at maturity.

The key differences are the issuer (an insurance company rather than a bank), the regulatory framework (state insurance departments rather than the FDIC), and typically, the interest rate. In 2026, top 5-year MYGA rates range from 6.0% to 6.3% — meaningfully above CD rates for the same term. On $100,000, that difference translates to $125 to $150 more per month in interest income.

MYGAs also grow tax-deferred. Interest credited inside a MYGA is not taxed annually — it compounds until you withdraw, which can meaningfully improve long-term accumulation compared to a CD where you owe taxes on interest each year even if you did not withdraw it.

Pros and Cons of CDs

Pros: FDIC insurance is the primary advantage — it is the gold standard of principal protection for bank deposits. CDs are simple, familiar, and available at nearly every bank. At maturity, access to your funds is immediate and penalty-free. For short-term parking of funds you know you will need within one to two years, CDs are difficult to beat on simplicity and safety.

Cons: CD interest is taxed as ordinary income in the year it is earned, which reduces the effective yield — particularly for retirees in higher tax brackets. CD rates are generally lower than comparable fixed annuity products. And the FDIC limit of $250,000 per institution means large deposits require spreading across multiple banks to maintain full coverage.

Pros and Cons of Fixed Annuities (MYGAs)

Pros: Higher rates than CDs for equivalent terms. Tax-deferred growth that compounds more efficiently over time. Principal fully protected by the insurance carrier throughout the term. Some MYGAs include a free-withdrawal provision allowing access to 10% of the account value annually without surrender charges — providing a degree of liquidity within the structure.

Cons: MYGAs are not FDIC insured. They are backed by state guaranty associations (typically up to $250,000) and the financial strength of the issuing carrier. Surrender charges apply to withdrawals beyond the free-withdrawal allowance during the term. And while the tax deferral is an advantage during accumulation, withdrawals are taxed as ordinary income — proper planning around withdrawal timing is important.

Rate Comparison: CDs vs MYGAs in 2026

Term	Top CD Rate (2026)	Top MYGA Rate (2026)	Mo. Income Diff. ($100K)
3-Year	~4.50%	5.65%	+$96/mo
5-Year	~4.75%	6.30%	+$129/mo
7-Year	~4.60%	6.50%	+$158/mo

Rates are illustrative. CD rates sourced from competitive online banks. MYGA rates based on current sample rates — actual rates vary by carrier and premium amount.

Which Is Right for You?

Choose a CD if you need absolute maximum protection via FDIC coverage, you are in a lower tax bracket where tax deferral matters less, or you plan to use the funds within two years and want the simplest possible structure.

Consider a MYGA if you want higher guaranteed rates, you have a time horizon of three or more years, your priority is tax-efficient accumulation, and you have sufficient liquid reserves outside the annuity so the surrender schedule is not a concern.

For many retirees, the right answer is both — CDs for the short-term liquid tier of a savings ladder, and a MYGA for the medium-term portion where you can commit funds for three to seven years and capture the rate premium. A SafeMoney certified advisor can help you structure that ladder efficiently around your income needs and tax situation. Use our retirement income calculator to model different scenarios before your conversation.

Frequently Asked Questions

Is a MYGA safer than a CD?

That depends on your definition of "safer." A CD carries FDIC insurance backed by the U.S. government — that is the highest-quality guarantee available for a bank deposit. A MYGA carries state guaranty association protection and depends on the financial strength of the issuing insurer. A highly rated carrier (A or better from A.M. Best) adds significant confidence, but it is not the same as federal deposit insurance. For amounts under $250,000, CDs offer arguably tighter protection; for amounts over $250,000, the comparison becomes more nuanced.

Do I pay taxes on CD interest every year?

Yes. The IRS requires you to report CD interest as ordinary income in the year it is credited, even if you do not withdraw it. This is called "phantom income" — you owe taxes on money you have not received yet. MYGAs avoid this issue by deferring taxation until actual withdrawal. For retirees in meaningful tax brackets, this difference compounds significantly over a 5- or 7-year term.

What happens to a MYGA at the end of the term?

At maturity, you have several options: take the full balance in cash, roll it into a new MYGA at the current rate, convert a portion to an immediate annuity for lifetime income, or transfer to another qualified account. Most carriers provide a surrender-free window of 30 days after maturity during which you can make changes without penalty. Planning this transition in advance — ideally 60 to 90 days before maturity — ensures you capture the best available rates.

Can I access my money in a MYGA before the term ends?

Most MYGAs allow free withdrawals of up to 10% of the account value per year without surrender charges. Withdrawals beyond that amount during the term trigger surrender charges, which typically start at 7%–10% in year one and decline each year until they disappear at maturity. Some products also include waiver provisions for nursing home confinement or terminal illness. Understanding the specific surrender schedule before you commit is essential — a licensed advisor can walk you through the fine print.

• CDs offer FDIC insurance — the strongest guarantee available — but current rates generally trail comparable MYGA rates by 100 to 175 basis points.
• On $100,000 over five years, the rate difference between a competitive CD and a MYGA can add up to $7,700 or more in additional interest earned.
• MYGA interest grows tax-deferred, avoiding the annual tax drag on CD interest — a meaningful advantage for retirees in moderate to higher tax brackets.
• Both products protect your principal fully — neither exposes you to market-value fluctuation, making both far less risky than bond funds for retirement savings.
• A CD/MYGA ladder — using CDs for short-term liquidity needs and MYGAs for longer-term segments — often captures the best of both structures.
• Use the retirement savings calculator to model the income difference before committing to either product.

Comparing CD rates to MYGA rates for your specific situation takes less than 15 minutes with the right advisor. Find a SafeMoney certified advisor near you and get a personalized side-by-side comparison — free of charge.