Enter a search term.
line drawing document and pencil

File a claim

Need to file an insurance claim? We’ll make the process as supportive, simple and swift as possible.

Action Teams

If you want to make an impact in your community but aren't sure where to begin, we're here to help.
Illustration of stairs and arrow pointing upward

Contact support

Can’t find what you’re looking for? Need to discuss a complex question? Let us know—we’re happy to help.
Use the search bar above to find information throughout our website. Or choose a topic you want to learn more about.

Fixed annuity vs. CD: Which is right for you?

Young woman working from home
damircudic/Getty Images

If you want to keep your retirement savings relatively safe, you have options. Two popular choices for conservative investors include certificates of deposit (CDs) and fixed annuities. Each has unique features, and which one is right for you depends on your circumstances. Looking at a fixed annuity vs. CD side by side can help you figure out which is best for your nest egg.

What is a fixed annuity?

A fixed annuity is a contract with an insurance company. You add money to it, either in lump sums or through regular contributions. A fixed annuity provides a guaranteed minimum interest rate for the life of the contract and also may pay a current rate that could be higher.

Certain types of fixed annuities like a multi-year guarantee annuity, or MYGA, will lock in an often higher fixed interest rate for the entire contract term. In addition, a fixed annuity will offer a variety of guaranteed income options. One option is income payments that last your entire life regardless of how long you live.

What is a CD?

Banking institutions typically offer CDs, which pay a fixed interest rate on your savings for a specific length of time. CDs are much simpler than annuities and don't have many features to manage. You choose how long and then deposit money in the account. You usually leave the money in for the entire term. If you withdraw money early, you likely will have an interest penalty. At the end, you can withdraw all the money—your deposit plus the accumulated interest—or reinvest it in a new CD or other products.

How do the key features of fixed annuities and CDs compare?

Fixed annuities and CDs have similarities, and they might appeal to conservative investors. With either approach, you earn interest on your money, but specific features might lead you to choose one over the other.

Tax deferral

Fixed annuities are generally tax-deferred, meaning any earnings inside of the contract are not reported as income each year. Eventually, you will pay taxes on earnings from a fixed annuity, but only when you take money out of the contract. This means you may have some control over exactly when that income hits your tax return. But the interest you earn from CDs is taxable each year even if you leave the principal in the CD.

Note that if you hold a fixed annuity or a CD inside a tax-deferred account like an individual retirement account (IRA), this might not matter because the IRA itself is already tax-deferred, and you typically only pay taxes when you take distributions from IRAs.

Fixed interest rate

Fixed annuities and CDs both usually accrue more interest than checking or savings accounts. But fixed annuities often earn a higher interest rate than a CD. Still, it's wise to compare offerings from different providers and consider various features before you decide which option is best.

Principal protection

Neither fixed annuities nor CDs lose value due to market activity. CDs are typically guaranteed by the FDIC or NCAU (up to certain limits), so you need only verify that your financial institution is insured and that your accounts qualify for full coverage. Fixed annuities are not FDIC or NCUA insured, but often are guaranteed by the issuing insurance company.


CDs and fixed annuities both require some commitment. For keeping your money in these products, you are typically rewarded with a higher rate than you can get from a savings account. But what if things change?

Plan on leaving the deposited funds in the CD until the maturity date (when the term ends). If you withdraw funds early, you may have to pay an interest penalty, which might be several months' worth of interest earnings.

Fixed annuities have surrender periods. A surrender period is a specified amount of years that you have to keep the money in a fixed annuity to avoid a penalty if you withdraw funds from the contract. Your insurance company will disclose these before you add funds to the contract. If you withdraw money during the surrender period, a surrender charge, amounting to a percentage of your withdrawal amount, may apply. However, fixed annuities might allow you to withdraw up to 10% of your balance each year before surrender charges apply. A fixed annuity surrender charge can reduce your principal. A CD penalty typically only reduces your interest, not your principal.

Market exposure

The vast majority of CDs are not exposed to the stock market. Instead, they pay interest at a rate that is usually set for the term of the CD. Likewise, fixed annuities do not have market exposure, so your interest does not depend on market performance.

Fixed annuity vs. CD: Pros and cons

As you examine and weigh the key features of fixed annuities and CDs, you may find some factors more advantageous—or disadvantageous—to one solution over the other. Here are some common considerations between the two.

Fixed annuity pros

  • You can maximize earnings without risking principal. You'll generally earn more interest than you'd get from a CD, and your risk is relatively low. Although there's no government guarantee, working with an established insurer can help to reduce your risk.
  • Tax-deferred earnings. If taxes are an issue, the general tax-deferral aspect of fixed annuities may interest you. In most cases, you can shelter earnings from annual taxation, until you need to withdraw funds.
  • Potential for lifetime income. If you choose, you can convert a fixed annuity into a stream of income. The insurance company manages your assets and makes payments, and you're protected for life. That said, if you're in poor health, you may want to arrange for beneficiaries to get assets after your passing. By adding a "period certain," you might ensure that payments continue for a specific number of years.
  • Long-term time horizon. If you don't plan to take withdrawals (which are typically subject to a surrender charge), you can often hold the fixed annuity long-term.

Fixed annuity cons

  • Low liquidity. Like with other types of annuities, your money is tied up in the contract making it harder to access your principal (and typically resulting in a surrender charge if you do).

CD pros

  • Flexibility. You can access your principal at any time, without a charge against the principal.
  • Support for short-term financial goals. If you know that you'll need your money in 12 to 18 months, a CD may help you earn a bit more than you'd get in a checking or savings account, and you'll receive the principal and interest when your CD matures.
  • FDIC and NCAU protection. At FDIC-insured banks or NCUA-insured credit unions, your funds are backed by the U.S. government. This insurance protects your deposited funds even if the bank or credit union closes its doors while your funds are deposited. However, it's important to ask about the dollar limits of the insurance based on what names are registered on the account as the dollar limits are set for each person owning accounts at the bank—not each account at the bank.

CD cons

  • Lower interest rates. Typically, CDs accrue interest at lower rates compared to fixed annuities.

Factor in your financial goals

Ultimately, you'll need to evaluate the fixed annuity vs. CD pros and cons with your unique financial goals in mind to decide what's best for you. But also consider that you don't need to choose just one. You might want to use CDs for short-term goals alongside a fixed annuity for tax deferral and the lifetime income option.

For help in crafting your financial plan, speak with a Thrivent financial advisor, who can discuss all your available options in more detail. Then, with some education and strategy, you'll be in a good position to decide what's best for your money.

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

Thrivent fixed annuity products:  Guarantees based on the financial strength and claims paying ability of Thrivent.

Holding an annuity inside a tax-qualified plan does not provide any additional tax benefits.

The value of a CD is guaranteed up to $250,000 per depositor, per insured institution, per insured institution, by the Federal Deposit Insurance Corp. (FDIC). An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. A money market fund seeks to maintain the value of $1.00 per share although you could lose money. The FDIC is an independent agency of the US government that protect the funds depositors place in banks and savings associations. FDIC insurance is backed by the full faith and credit of the United States government.