MYGA vs CD: head-to-head
| MYGA Annuity | Bank CD | |
|---|---|---|
| Typical 5-year rate | 5.75% – 6.10% APY | 4.00% – 4.75% APY |
| Tax treatment | Tax-deferred until withdrawal | Taxed annually (1099-INT) |
| Principal protection | Guaranteed by carrier + state guaranty assoc. | FDIC insured up to $250k |
| Penalty-free withdrawals | Typically 10% per year after year one | None during term |
| Early withdrawal cost | Surrender charge (declining) + possible 10% IRS penalty if under 59½ | Loss of interest (typically 6–12 months) |
| Can convert to lifetime income | Yes (annuitize or income rider) | No |
| Minimum deposit | $10,000–$25,000 | Often $500–$1,000 |
| Issued by | Insurance carrier | Bank or credit union |
The rate difference adds up
On a $100,000 deposit held for 5 years, a 1% higher annual rate compounds into roughly $5,200 of extra after-tax value for an investor in the 24% federal bracket (factoring in tax deferral). For retirees rolling over a meaningful chunk of cash, the MYGA advantage is rarely trivial.
When a CD still wins
Pros
- ✓You need access to the funds within 1–2 years
- ✓You want the simplicity of FDIC insurance
- ✓Your deposit is below the typical MYGA minimum
- ✓You're already at or near $250k of annuity value with one carrier
Cons
- ×You'll commit funds for 3+ years
- ×You want higher yield without taking market risk
- ×You want tax-deferred growth
- ×You may want to convert to lifetime income later
The bottom line
For retirement money you won't touch for at least 3 years, a MYGA from an A-rated carrier usually beats a same-term CD on every dimension that matters except FDIC branding. Keep your emergency fund in a high-yield savings account or short CD, and consider a MYGA for the longer-horizon cash.
See live rates on our MYGA rates page or explore annuity vs bond as another alternative to CDs.
Frequently asked questions
- Is an annuity better than a CD?
- It depends on your goals. MYGAs typically pay 50–150 basis points more than comparable-term CDs, grow tax-deferred, and can be converted to lifetime income. CDs are FDIC-insured, simpler, and have no surrender charges. For money you won't need for 3+ years, a MYGA usually wins on yield and tax efficiency. For short-term cash, a CD or high-yield savings account is more flexible.
- Are annuities safer than CDs?
- CDs are guaranteed by the FDIC up to $250,000 per depositor per bank. Annuities are guaranteed by the issuing insurance carrier and backed by state guaranty associations (typically $250,000 of annuity value per insurer per owner). Both are very safe when you stay within coverage limits and use A-rated carriers.
- Do you pay taxes on annuities like CDs?
- No. CDs generate a 1099-INT each year and you owe income tax on the interest annually, even if you reinvest it. Annuity interest grows tax-deferred — you only owe income tax when you withdraw. For investors in higher tax brackets, this deferral materially increases after-tax growth.
- Can I lose money in an annuity?
- Not from market losses if you hold a fixed annuity (MYGA) to maturity — the rate is contractually guaranteed. You can lose money to surrender charges if you cash out early, or in the extremely rare event a carrier becomes insolvent and exceeds state guaranty limits.
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