Is an annuity FDIC insured?

No. FDIC insurance covers deposits at banks and credit unions, up to $250,000 per depositor, per institution, per ownership category. An annuity is an insurance contract, not a deposit. It is backed by the insurer's ability to pay, with a state guaranty association as a backstop up to limits that vary by state.

What is the difference between a CD and a fixed annuity?

A CD is a bank deposit with a fixed term and a published rate; interest is taxed every year and the early-withdrawal penalty is usually a few months of interest. A fixed annuity is an insurance contract with a guaranteed rate; interest is not taxed until you withdraw it, but the money is committed for longer and leaving early can cost a surrender charge and a market value adjustment.

Which pays more, a CD or an annuity?

At the same term, a multi-year guaranteed annuity usually quotes a rate somewhere between a quarter and a full percentage point above a comparable bank CD, and the gap is larger the longer the term. The higher quote is not free: it is paid for with a longer surrender period and no federal deposit insurance.

Are annuities safer than CDs?

A CD has the stronger protection for the first $250,000 because the federal government guarantees it. Beyond that, an annuity's safety depends on the insurer's financial strength rating and your state guaranty association's limit. Neither product loses value because the stock market falls.

Do I pay tax on a CD every year?

Yes. Bank CD interest is taxable in the year it is credited, even if you leave it in the account and even if the CD has not matured. An annuity held outside an IRA defers tax on the growth until you withdraw it.

Can I lose money in a CD?

Not in the account itself, provided the balance stays within FDIC limits and you hold to maturity. You can lose purchasing power if the rate is below inflation, and you can lose part of the interest if you cash out early. A CD bought on the secondary market can also be sold at a loss if rates have risen.

Annuity guide

Annuity vs CD

A CD and a fixed annuity both promise a rate, both keep your principal out of the stock market, and both punish you for leaving early. The decision comes down to four things: who stands behind the money, how much you actually earn after tax, how soon you can get out, and what the contract costs you if plans change.

Last updated September 20, 2026 · Reviewed against our editorial methodology

The short answer

Choose a CD when the amount fits inside FDIC limits, you might need it before the term ends, or you want the simplest possible contract. Choose a fixed annuity — specifically a multi-year guaranteed annuity, or MYGA — when the money has a date on it you can name, you are in a high tax bracket, and the quoted rate is enough above a CD to be worth the surrender charge.

The two products are closer than anyone selling either of them will tell you. If you already understand how a CD works, you understand most of a fixed annuity; the rest is in how fixed annuity contracts are structured.

What each product actually is

A certificate of deposit is a time deposit. You lend the bank a fixed amount for a fixed term at a published rate. The bank pays you interest, usually at maturity or on a schedule, and returns your principal.

A fixed annuity is an insurance contract. You give an insurer a lump sum, it credits a guaranteed rate for a stated period, and at the end you can withdraw, exchange into a new contract, or convert the balance into income. The insurer invests your money mainly in bonds and keeps a spread.

Both are fixed-income instruments with a maturity date. The difference in structure shows up almost entirely in the exit rules and the tax treatment.

Who stands behind the money

	Bank CD	Fixed annuity
Guarantee	FDIC insurance, $250,000 per depositor, per bank, per ownership category	The insurer's claims-paying ability
Backstop	Federal government	State guaranty association, limits vary by state
What to check	That the bank is FDIC-insured and your balance is under the limit	The insurer's AM Best, S&P or Moody's rating and your state's coverage limit

Annuities are not FDIC insured. That single fact is the honest reason CDs win for many households, and it is why the rate on an annuity is usually a little higher — you are being paid to accept an insurer instead of the government.

Comparing the yield fairly

Quotes are easy to compare; contracts are not. Before you decide one rate beats another, make sure you are comparing the same thing.

Match the term. A five-year MYGA against a one-year CD is not a comparison.
Confirm it is a true MYGA. Some "fixed" annuities guarantee a rate for one year only and then reset at the insurer's discretion. Ask for the guaranteed minimum rate, in writing.
Depreciate any bonus. A 5% rate bonus paid up front is spread across the surrender period. A five-year contract with a 3% bonus is worth roughly 0.6% a year, not 3%.
Check the rate band. Some insurers quote a better rate only above $100,000.
Look at the renewal rate, not just the first-year rate. This is where book-rate contracts quietly disappoint.

Rate levels move weekly with the bond market, so we publish the ranges we are seeing with the date we checked them on the current annuity rates page rather than baking numbers into this guide.

How the tax falls

This is where the annuity genuinely has an advantage — and where the advantage is easiest to overstate.

	CD	Annuity outside an IRA
When interest is taxed	Every year it is credited	Only when you withdraw
Rate applied	Ordinary income rates	Ordinary income rates on the gains
Order of withdrawal	Not applicable	Gains come out first ("interest first")
Before 59½	Bank penalty only	Possible 10% additional tax on the gains
Required minimum distributions	Not applicable	Only if the annuity sits in an IRA; a non-qualified annuity has no RMDs

Inside an IRA or 401(k), the annuity adds no extra tax deferral — the account already defers. Buying an annuity with IRA money means you are paying insurance costs for guarantees, not for tax.

Getting your money out early

Both products lock, but they lock differently, and this is the most common source of regret.

CD: typically a penalty of three to six months' interest, sometimes more on a long-term CD. You keep your principal.
Annuity: a declining surrender charge — a 10-year contract might charge 9% in year one falling to zero in year ten — plus, on some contracts, a market value adjustment that reduces your proceeds if interest rates have risen since you bought.
Free withdrawal: many annuities let you take about 10% of the account value each year without penalty; some allow interest only, and a few allow nothing until maturity.
Death: beneficiaries normally receive an annuity's full value with no surrender charge; a CD simply passes with the estate.

A worked comparison

Illustrative only — these are made-up rates used to show the mechanics, not today's quotes. Suppose $50,000 for five years, a 24% marginal tax rate, and a choice between a CD at 4.50% and a MYGA at 5.40%.

	CD at 4.50%	MYGA at 5.40%
How it compounds	After annual tax: 4.50% × (1 − 0.24) = 3.42%	Full 5.40% compounds untouched
Balance at year 5	≈ $59,200	≈ $65,000
Tax still owed	Already paid each year	24% on the $15,000 gain ≈ $3,600
You end with	≈ $59,200	≈ $61,400

The annuity comes out roughly $2,200 ahead on $50,000 over five years — about $440 a year. That is a real number, but it is smaller than most quoted-rate comparisons imply, and it disappears if your tax rate in five years is higher than 24%, if you touch the money early, or if you are under 59½ and trigger the additional tax. At a 12% marginal rate the gap shrinks further.

A five-question worksheet

Answer these in order. The first two are the ones that decide most cases.

Question	Points to a CD	Points to an annuity
Do I need this money before the term ends?	Yes — CD wins outright	No, I can name the date
Is the amount inside FDIC limits at one bank?	Yes, and I like the simplicity	No, or I am willing to check ratings
What is my marginal tax rate now?	Low — deferral is worth little	High — deferral is worth real money
Am I 59½ or older?	No — the 10% additional tax looms	Yes
How large is the rate gap at the same term?	Under about 0.5%	Large enough to pay for the surrender risk

If the worksheet points to an annuity, the next step is comparing contracts on more than the headline number: the surrender schedule, the free withdrawal allowance, the guaranteed minimum, and the issuer's rating.

Frequently asked questions

Is an annuity FDIC insured?: No. FDIC insurance covers deposits at banks and credit unions, up to $250,000 per depositor, per institution, per ownership category. An annuity is an insurance contract, not a deposit. It is backed by the insurer's ability to pay, with a state guaranty association as a backstop up to limits that vary by state.
What is the difference between a CD and a fixed annuity?: A CD is a bank deposit with a fixed term and a published rate; interest is taxed every year and the early-withdrawal penalty is usually a few months of interest. A fixed annuity is an insurance contract with a guaranteed rate; interest is not taxed until you withdraw it, but the money is committed for longer and leaving early can cost a surrender charge and a market value adjustment.
Which pays more, a CD or an annuity?: At the same term, a multi-year guaranteed annuity usually quotes a rate somewhere between a quarter and a full percentage point above a comparable bank CD, and the gap is larger the longer the term. The higher quote is not free: it is paid for with a longer surrender period and no federal deposit insurance.
Are annuities safer than CDs?: A CD has the stronger protection for the first $250,000 because the federal government guarantees it. Beyond that, an annuity's safety depends on the insurer's financial strength rating and your state guaranty association's limit. Neither product loses value because the stock market falls.
Do I pay tax on a CD every year?: Yes. Bank CD interest is taxable in the year it is credited, even if you leave it in the account and even if the CD has not matured. An annuity held outside an IRA defers tax on the growth until you withdraw it.
Can I lose money in a CD?: Not in the account itself, provided the balance stays within FDIC limits and you hold to maturity. You can lose purchasing power if the rate is below inflation, and you can lose part of the interest if you cash out early. A CD bought on the secondary market can also be sold at a loss if rates have risen.