Annuity vs. CD: What’s the Difference?

When people ask "annuity vs. CD," they are almost always comparing a bank certificate of deposit to a Multi-Year Guaranteed Annuity (MYGA), the fixed-rate annuity type. Both lock in a known rate for a known term. The real differences are underneath the surface.

Feature	Bank CD	MYGA Annuity
Who backs it	FDIC insurance (up to applicable limits)	The issuing insurance company's claims-paying ability
Tax treatment	Interest taxed annually, even if unused	Growth is typically tax-deferred until withdrawal
Typical term	Weeks to 5 years, widely available	Commonly 3 to 10 years
Early withdrawal	Early-withdrawal penalty (varies by bank)	Surrender charge + often a penalty-free annual amount (commonly ~10%)
Where to buy	Any bank or credit union	Through a licensed insurance advisor/agent
Rate shopping	Easy, widely published	Requires comparing current carrier offers

Why tax deferral matters more than it sounds like it should

A CD's interest is taxable income the year you earn it, whether or not you touch the money. A MYGA's growth compounds tax-deferred, meaning you are not paying tax on interest you have not withdrawn. Over a multi-year term, especially for someone in a higher tax bracket, that deferral can meaningfully change the after-tax outcome, even at a similar headline rate. It is not automatically better for everyone, since all deferred growth is eventually taxed on withdrawal, often at ordinary income rates, but it is a real factor to run the numbers on.

Why FDIC backing is not nothing

A CD's FDIC backing is a federal guarantee, full stop, up to the insured limit. A MYGA's guarantee depends on the specific insurance company's financial strength. Most well-known carriers are highly rated, and state guaranty associations provide an additional layer of protection up to state-specific limits, but it is a different kind of backing than FDIC insurance, and worth understanding before putting a large sum into one contract.

Rate shopping is harder for annuities, on purpose

CD rates are published everywhere and change constantly. MYGA rates require going through a licensed advisor or agent to see current carrier offers, which can feel opaque compared to a bank's posted rate sheet. This is exactly the kind of comparison a licensed advisor should walk you through with real, current numbers rather than a generic "annuities beat CDs" pitch.

The honest bottom line

Neither is universally better. A CD is simpler, more liquid in the sense that terms are usually shorter and more widely available, and easier to rate-shop yourself. A MYGA can offer tax deferral and, at times, a higher locked-in rate, in exchange for a longer typical commitment and a different kind of institutional backing. For many retirees, the right answer is using both for different parts of a savings allocation, not picking one exclusively.