Fixed Deferred Annuities vs. CDs: What’s the difference? 

While CDs and fixed-deferred annuities are both savings vehicles, it's important to understand the differences between the two so that you can choose the solution that best meets your needs.

What is a CD?

A certificate of deposit (CD) is a type of savings account that lets depositors lock in a fixed interest rate for a specific amount of time. Since the bank gets to hold onto your money for the duration of the CD, the rate you receive is generally higher than what you might find on a regular savings account.

What is a fixed-deferred annuity?

A fixed-deferred annuity is another savings vehicle that pays a fixed interest rate for a specific amount of time. In this case, however, your money is held by an insurance company that uses it to generate a series of guaranteed income payments that you can use in retirement. As a result, fixed-deferred annuity are long-term savings vehicles that usually last much longer than CDs.

CD vs. annuity: Which one works best for you?

While both CDs and fixed-deferred annuities can help you build wealth, it’s important to realize that they go about it in very different ways. If you are debating between the two, be sure to review the following sections so that you can see how they compare and decide based on your needs.

Safety of principal

CDs: Since these accounts are usually issued by banks and credit unions, your money will be insured by either the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration Share Insurance Fund (NCUSIF). In most cases, CDs are insured up to $250,000 per account owner so they can be an extremely safe place to deposit your money.¹

Fixed-deferred annuities: Unlike CDs, annuities are backed in full by the claims-paying ability of the issuing company (rather than a government-backed insurance program). While these products are also considered low risk, you should make sure the company you choose is financially sound. You can request the findings of independent rating agencies such as Moody’s, A.M. Best, Standard & Poor’s, and Fitch by contacting them directly.

Accumulation period

CDs: Since CDs often last anywhere from one month to five years, they are usually better suited for people with short-term accumulation needs (such as saving for a car or the down payment on a home). The availability of short-term maturation (expiration) dates also makes these products popular with retirees who may need access to their money in the near future.

Fixed-deferred annuities: A fixed deferred annuity is designed to help you accumulate money for retirement, or to protect the funds you’ve already saved once you’ve reached retirement. Since the money you receive will not be paid out for several years (payouts are usually deferred for 5 years or more), these products are generally intended for people with a long investment horizon.

Interest return

CDs: CDs offer you a guaranteed rate of return for a specified period; interest rates will vary depending on market conditions at the time the CD is purchased and the length of time before the CD’s maturity, but they are usually fixed for the entire CD term. There is no guaranteed minimum for renewal rates.
 
Fixed-deferred annuities: With a fixed deferred annuity, a guaranteed interest rate is locked in for an initial period. After that, interest rates may be adjusted each year. Fixed deferred annuities also provide you with a guaranteed minimum interest rate, regardless of market conditions.

CD vs. annuity: Key objectives

Tax savings

CDs: The interest you get on a CD is 100% taxable and must be paid annually—you do not get to postpone taxes until the CD matures. That means any interest generated during the year will be added to your income when you file your return.

Fixed-deferred annuities: With fixed deferred annuities, earnings accumulate tax deferred and are not treated as taxable income until they are withdrawn. Since these products help your defer taxes until retirement (when your tax bracket may be lower) they can be an extremely tax-efficient use of your money. What’s more, fixed- deferred annuities can also help retirees reduce or eliminate taxes on Social Security benefits. That’s because any money you defer (even in retirement) can help lower your taxable income—possibly below the Social Security threshold. (In 2025, couples filing jointly with incomes below $32,000 a year owed no taxes on Social Security benefits, while couples with incomes between $32,000 to $44,000 owed taxes on 50 percent of their benefits, and couples with incomes of more than $44,000 owed taxes on 85 percent of their benefits.¹)
 

Liquidity

CDs: Any money deposited in a CD will be “locked” from use until the maturity (expiration) date. If you need access to the funds in a CD prior to that, you may have to pay an interest penalty ranging from 30 days to six months of interest.
 
Fixed-deferred annuities: A fixed deferred annuity also provides you with access to your money; however there is a period when surrender charges may apply. (Most companies will allow you to withdraw a portion of your deferred annuity’s account value, usually 10% each year, without a company-imposed surrender charge.)
 Once the surrender-charge period has expired, you can access your money, penalty-free, at any time.^*

* It’s important to remember that any withdrawals will be taxable and, if made prior to age 59½, may be subject to a 10% IRS tax penalty.

Distribution options at maturity

CDs: When a CD reaches its maturity, you can take the lump-sum value in cash, renew the CD for the same or for a different maturity period, or consider other savings alternatives.
 
Fixed-deferred annuities: When a fixed-deferred annuity matures, you can withdraw your money in one lump sum, or select a lifetime income option that will provide a steady flow of income for the rest of your life.

Fixed-deferred annuity FAQs

*Note: If your estate is large enough, both CDs and fixed-deferred annuities may be subject to estate taxes.

Neither New York Life Insurance Company nor its agents provide tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.

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¹Source: https://www-origin.ssa.gov/benefits/retirement/planner/taxes.html