Annuities vs CDs: Which Pays You More?

Most people comparing annuities and CDs are asking the wrong question. They want to know which is safer — and the answer is that both are safe. The real question is which one pays you more, keeps more of that return away from the IRS, and actually fits what you're trying to do with the money.

In April 2026, the best 5-year CD rates top out around 4.34% APY. The best 5-year MYGA — a multi-year guaranteed annuity, which is the annuity product that most directly competes with CDs — is paying 6.30%. That's nearly two full percentage points on the same 5-year commitment, and the annuity growth is tax-deferred on top of it. For a $200,000 position, that difference compounds into real money before you ever factor in the tax advantage.

That's the comparison. Everything below explains when it holds, when it doesn't, and when a CD actually makes more sense.

Key Takeaways

• The best 5-year MYGA rate in April 2026 is 6.30% (American Gulf — Anchor MYGA 5) vs. the best 5-year CD at 4.34% APY
• The best 3-year MYGA is 5.85% (Wichita National) vs. the best 3-year CD at 4.09%
• CD interest is taxable every year it's earned — even if you don't withdraw it; MYGA growth is tax-deferred until withdrawal
• CDs are FDIC-insured up to $250,000 per bank; MYGAs are backed by the carrier's financial strength and state guaranty associations
• The only scenario where a CD consistently wins: money you need access to at a precise short-term date with no flexibility
• MYGAs offer 10% annual free withdrawals on most contracts; CDs typically penalize any early access

Annuities vs CDs: The Core Difference

A CD is a bank product. You deposit money for a fixed term, the bank pays you a guaranteed rate, and the FDIC insures the balance up to $250,000. Simple, federally guaranteed, fully taxable every year.

A MYGA is an insurance product. You deposit a lump sum with an insurance carrier for a fixed term, the carrier credits a guaranteed rate, and that growth accumulates tax-deferred until you withdraw. The carrier's financial strength — not federal insurance — backs the guarantee.

Everything else in this comparison flows from that structural difference. The rate advantage, the tax treatment, the liquidity rules, and the use cases all trace back to what kind of institution is holding your money and under what rules.

April 2026 Rate Comparison: MYGAs vs CDs

This is where the comparison gets concrete. The table below puts current top MYGA rates from our April 2026 survey directly against the best available CD rates for the same term.

At one year, the rates are roughly equal and a CD is the simpler choice — no insurance contract, no surrender period, FDIC-insured. At two years and beyond, the MYGA advantage opens up and grows with the term length. By five years, you're looking at nearly two full percentage points before the tax-deferral benefit is even calculated.

The tax math matters more than most people realize. On a CD, you pay ordinary income tax on the interest every year it's credited — even if you roll it over and don't touch the money. On a MYGA, you pay nothing until you withdraw. For someone in the 22% or 24% federal bracket, that annual tax drag on CD interest meaningfully reduces the effective yield over a 5- or 7-year term.

When the Tax Deferral Actually Changes the Math

Take a $200,000 deposit in a 5-year term. Best CD at 4.34%, best MYGA at 6.30%.

On the CD, you earn interest annually and pay taxes on it each year. At a 24% federal rate, your effective after-tax yield on 4.34% drops to roughly 3.30%.

On the MYGA, the 6.30% compounds inside the contract without annual tax drag. You don't pay until withdrawal, and if that withdrawal happens in retirement when your bracket is lower, the effective rate gap widens further.

The headline rate difference is 1.96 percentage points. The after-tax difference for a 24% bracket taxpayer is closer to 3 percentage points when you account for the annual CD tax drag vs. deferred MYGA taxation. On a $200,000 position over five years, that's a meaningful dollar difference — not a rounding error.

Liquidity: What You Can Actually Do With the Money

This is where CDs have a legitimate argument — but it's narrower than most people think.

CDs have defined terms with early withdrawal penalties typically ranging from 90 days to one year of interest. At maturity, you get everything out with no restrictions. No-penalty CDs exist but pay lower rates — usually below the top MYGA rates by a wide margin.

MYGAs have surrender charge periods that match the term length — typically 3–10 years — with charges starting around 7–9% and stepping down annually. The key detail most people miss: most MYGAs allow 10% of the contract value out each year without any surrender charge. That's $20,000 annually on a $200,000 MYGA — accessible without penalty, every year of the contract.

For most clients, the MYGA's 10% annual free withdrawal provision covers any realistic liquidity need during the contract period. The CD wins only for money that must be 100% accessible at a specific date with no flexibility — a home purchase closing, a tax payment with a known due date, tuition due in 14 months.

Safety: FDIC vs Insurance Company Financial Strength

CDs held at FDIC-member banks are federally insured up to $250,000 per depositor per bank. That's a federal government guarantee — unconditional within the limit.

MYGAs are backed by the issuing insurance carrier's financial strength, not a federal guarantee. State guaranty associations provide a backup layer — typically $250,000 in coverage per insurer per insured, though limits vary by state. The practical implication: stick with carriers rated A- or better by AM Best, and size positions within state guaranty limits if you're placing a large amount at a single carrier.

The safety conversation changes depending on position size. For $100,000 or less at a single A-rated carrier, the MYGA safety question is largely theoretical. For $500,000+, splitting across two carriers — each within guaranty limits — is the right move.

When a CD Actually Makes More Sense

There are three legitimate use cases where a CD wins the comparison.

Precision timing: You know exactly when you need the money — a home purchase closing in 11 months, tuition due in 8 months, a tax installment in 6 months. CDs mature on a specific date and return 100% of your principal and interest with no restrictions. MYGAs don't work for precision-timed needs.

Position size under $10,000: Many competitive MYGA carriers require $10,000+ minimums. For smaller amounts, a high-yield CD or online savings account is the practical choice.

Absolute simplicity: Some clients don't want an insurance product, a carrier evaluation, or a contract with surrender language — even if the math favors the MYGA. That's a legitimate preference, and a CD respects it.

Outside those three scenarios, the rate and tax math consistently favors the MYGA in today's environment.

Income Options: Where Annuities Have No Competition

This is the comparison that matters most for retirement planning — and it's not close.

A CD matures and hands you a lump sum. You decide what to do with it. There is no built-in mechanism for turning a CD into a guaranteed income stream.

An annuity — specifically a SPIA or a deferred annuity converted at retirement — can pay you a guaranteed monthly income for the rest of your life regardless of how long you live. That longevity protection is structurally impossible to replicate with a CD. You would need to self-manage withdrawals and hope the math works out, with no guarantee against outliving the balance.

For clients whose primary concern is running out of money in retirement, this single feature makes the annuity comparison largely academic. No CD rate closes the gap on guaranteed lifetime income.

For a broader look at how annuities work as an income vehicle, how annuities work covers the full structure. For rate-specific data on SPIAs, our April 2026 SPIA rate survey has current payout figures. For a full breakdown of how annuity withdrawals are taxed, see our annuity taxation guide. For comparisons with other retirement strategies, see annuities vs 401(k) and annuities vs life insurance.

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