Is an Annuity Better Than a CD?
For savers over 59½ in the 22% federal tax bracket or higher who can leave the money alone for the full term, a multi-year guaranteed annuity (MYGA) usually beats a CD after taxes. MYGAs tend to pay a higher fixed rate, and their interest grows tax-deferred while CD interest is taxed every year. Under 59½, or if you may need the money early, a CD is usually the safer choice.
Annuity vs CD Calculator
Compare today's MYGA rates with bank CDs. Both protect principal and offer a guaranteed rate, but taxation, liquidity provisions, and long-term accumulation potential differ. Run the calculator to see the after-tax impact of tax deferral on your numbers.
Important Assumptions and Disclosures
- CD interest assumed taxable annually at the entered marginal rate (simplified).
- Annuity interest assumed to compound tax-deferred; tax applied to the gain at end of horizon at the same marginal rate (real-world distributions may vary).
- No early surrender charges, withdrawal penalties, RMDs, or state premium taxes modeled.
- The 10% IRS early-withdrawal penalty applies to non-qualified annuity earnings withdrawn before age 59 1/2 and is not included in this model.
- Educational only, not individualized tax, legal, or investment advice. Verify current rates and product features.
CD vs. Annuity Rates Today
The table compares the best five-year CD rate we track with a five-year MYGA and a five-year Treasury, and shows what $25,000 would earn in each. Rates update weekly.
| Product | Rate/APY | What $25,000 earns over 5 years | Guaranteed by |
|---|---|---|---|
| National average 5-year CD FDIC national rate, September 2026 | 1.38% APY | $1,773 | FDIC or NCUA insurance, up to $250,000 |
| Barclays 5-year CD Best standard CD we track, as of Oct 7, 2026 | 4.75% APY | $6,529 | FDIC insurance, up to $250,000 |
| 5-year MYGA: Knighthead Life Staysail 5 (Simple Interest) Top rate from carriers rated A- or better (AM Best A-) | 6.65% guaranteed | $8,313 | The issuing insurer and state guaranty associations |
| 5-year Treasury Par yield as of Oct 13, 2026 | 5.00% yield | $6,907 | The U.S. government |
MYGAs are not FDIC-insured; they are backed by the issuing insurer and state guaranty associations, up to state limits, and carry surrender charges for early withdrawals. Earnings are estimates before taxes: the rate compounded once a year over the term with interest left in the account (simple interest where noted). The national average and Treasury figures are treated the same way. A penalty may be imposed for early CD withdrawal. This comparison is educational, not a recommendation; verify every rate with the provider.
For every term, see today’s best CD rates and best MYGA rates. For background on how a MYGA works, see what is a MYGA.
How Taxes Change the Math
CD interest is taxed as ordinary income in the year it is earned, even if you leave it in the account. The bank reports it on Form 1099-INT and you pay tax on it every April. MYGA interest is tax-deferred, so it keeps compounding untaxed until you withdraw it.
Example: $200,000 Over 3 and 5 Years
This example assumes a CD at 4.30%, a MYGA at 5.75% and a 24% federal tax bracket, with the MYGA’s interest taxed in full when the term ends. These rates are for illustration only; use the calculator above with today’s rates.
| After-tax value | 3 years | 5 years |
|---|---|---|
| CD at 4.30% (taxed each year) | $220,256 | $234,887 |
| MYGA at 5.75% (before final tax) | $236,522 | $264,504 |
| Tax due on MYGA interest at the end | $8,765 | $15,481 |
| MYGA after tax | $227,757 | $249,023 |
| MYGA advantage | $7,501 | $14,136 |
The gap grows with time because the MYGA never loses part of its interest to tax along the way. It shrinks in a lower tax bracket and widens in a higher one.
The 59½ Rule
If you withdraw earnings from a non-qualified annuity before age 59½, the IRS adds a 10% early distribution penalty on top of ordinary income tax. CDs have no such penalty. That is why a CD is usually the better fit for savers who might need the money before 59½.
Safety and Access
CDs at banks and credit unions are insured by the FDIC or NCUA up to $250,000 per depositor, per ownership category, per institution. A MYGA is backed by the issuing insurance company, and by your state’s guaranty association up to limits that vary by state. The federal guarantee is the stronger one, so many buyers stick with insurers rated A or better by AM Best; see our state guaranty association guide.
Both products charge for early withdrawals. A CD usually costs a set amount of interest, while a MYGA charges a surrender fee that steps down each year, and many MYGAs let you take out 10% a year without a fee. If you may need most of the money before the term ends, a CD is the more flexible choice.
Which Should You Choose?
A MYGA usually fits if you:
- Are 59½ or older, or will be before you need the money
- Are in the 22% federal tax bracket or higher
- Can leave the money in for the full term, with an emergency fund held elsewhere
- Have more than $250,000 to place, beyond one bank’s FDIC coverage
A CD usually fits if you:
- Are under 59½ and might need the money before then
- Are in the 12% federal tax bracket or lower, where tax deferral is worth less
- Want a federal guarantee on every dollar
- Want the easiest access if plans change
Many savers use both, keeping near-term cash in CDs and longer-term savings in MYGAs. See annuity laddering strategy for how to stagger the terms, and how to compare annuities before you buy.
Annuity vs. CD FAQ
Are MYGA rates higher than CD rates?
Usually, though the gap changes with the market. Check the rate table above for today’s top five-year CD and MYGA rates. Insurers can often pay more because they invest in longer-term bonds than banks typically hold.
Are MYGAs as safe as CDs?
Both protect your principal, but in different ways. CDs carry federal FDIC or NCUA insurance, while MYGAs rely on the insurer’s financial strength and state guaranty associations. CDs have the stronger guarantee.
Can I roll over an IRA into a MYGA?
Yes. A traditional IRA, 401(k) or 403(b) can be moved into a qualified MYGA without triggering tax. Withdrawals before 59½ face the same 10% penalty as any other retirement account.
Can I lose money in a MYGA?
Not from the market, since the rate and principal are guaranteed by the insurer. You can lose money if you surrender early and the surrender charge, plus any market value adjustment, is larger than the interest you have earned.
What happens when a MYGA matures?
You typically get a short window, often about 30 days, to withdraw the money, renew with the same insurer at its new rate, or move it tax-free to another annuity through a 1035 exchange. If you do nothing, many contracts renew automatically.
How much can I put into a MYGA?
There is no federal contribution limit. Each contract sets its own minimum and maximum, and you can spread larger amounts across several insurers.
