Fixed Annuity vs. CD: 7 Key Differences to Know

The best option depends on when you need access to the money, how you prefer earnings are taxed, what kind of financial backing applies and whether the money is meant for a near-term goal or future retirement income.

Key takeaways:

• A CD is a bank or credit union deposit product. A fixed annuity is a financial product.

• CDs can be a fit for shorter-term savings goals with a known maturity date.

• Fixed annuities can be a fit for longer-term retirement planning, especially when tax-deferred growth or future income are part of the discussion.

• CD interest is generally taxable when received or when it becomes available without a substantial penalty.¹

• Fixed annuity earnings are generally tax deferred until money is withdrawn.

• CDs may have early withdrawal penalties. Fixed annuities may have surrender charges, withdrawal limits or tax considerations.

• CDs and fixed annuities are backed differently, so it is important to understand the issuer and applicable limits before deciding.

What’s the difference between a fixed annuity and a CD?

1. A CD is a deposit product. A fixed annuity is a financial product.

The biggest difference between a fixed annuity and a CD is the structure.

A CD is a savings tool from a bank or credit union with a fixed maturity date and a fixed interest rate.² You deposit money for a set term, and the financial institution pays interest based on the CD terms.

A fixed annuity is a financial product that can serve a role in your retirement income plan. You put money into the product, and an insurance company credits interest based on the terms. Annuities turn the value into future income for retirement.

Nate DeBoer, VP and actuary at Mutual of Omaha, explains why people often compare fixed annuities to CDs: “A multi-year guaranteed annuity is kind of like a CD, where the insurance carrier is giving you a fixed crediting rate for some specified term.”

That comparison is helpful, but it has limits. A fixed annuity may have a CD-like rate period, but it is still a financial product with different tax treatment, access rules and potential income options.

2. CDs often fit shorter timelines

A CD may be useful when you know when you want the money back. For example, a CD may fit money set aside for a planned purchase, home project, future tax payment or a portion of savings that has a specific time frame.

When the CD matures, you can generally withdraw the money, renew the CD or move the funds somewhere else. If you withdraw money before maturity, the financial institution may charge an early withdrawal penalty.

Consider a CD when you:

• Want a defined maturity date

• Prefer a bank or credit union deposit product

• Are saving for a shorter-term goal

• Want a fixed interest rate for a set term

• Do not need retirement income features

3. Fixed annuities often fit longer retirement goals

A fixed annuity may be used for a longer-term planning goal. Instead of asking, “When do I need this money back?” the question becomes, “How could this money provide predictability in my retirement income plan?”

That retirement focus matters because many people are not just trying to grow money. They are also thinking about how savings may eventually become income.

Mutual of Omaha’s 2025 Decumulation Study found that 65% of fully retired adults and 68% of near-retired adults said they have or expect to have three or more sources of income during retirement.** That means many households are coordinating more than one income source, such as Social Security, savings, investments, pensions, and annuities.

DeBoer describes the planning shift this way: “If you think of any retirement arc, you have an accumulation, or a savings building phase. At some point you flip into the deaccumulation phase, which is turning that retirement savings into a stream of income.”

A fixed annuity can be part of that conversation.

4. Taxes work differently

Taxes are one of the clearest differences between a fixed annuity and a CD.

With a CD, interest is generally included in income when you receive it or when you are entitled to receive it without paying a substantial penalty.¹ That may mean paying tax on interest even if you renew the CD instead of using the money.

With a fixed annuity, "the gains are tax-deferred until you take income out of it,” DeBoer explains.

• Tax-deferred does not mean tax-free. When money comes out of an annuity, the taxable portion is generally subject to income tax. Certain distributions before age 59½ may also be subject to an additional 10% tax unless an exception applies.³

Because tax treatment can vary by account type, funding source and withdrawal timing, consider reviewing your tax questions with a financial or tax professional.

5. Access to cash is not the same

A CD and a fixed annuity may both limit early access, but the rules are different.

With a CD, your money is generally committed until the maturity date. If you withdraw money early, you may pay an early withdrawal penalty.

With a fixed annuity, the terms can include a surrender period. If you withdraw more than the contract allows during that period, surrender charges may apply. Withdrawals may also have tax considerations. DeBoer highlights not to “expect an annuity to be like your checking account. It’s an investment in time and duration.”

6. CDs and fixed annuities are backed differently

CDs and fixed annuities do not have the same type of backing.

CDs held at FDIC-insured banks are deposit products eligible for FDIC deposit insurance up to applicable limits. The FDIC states that time deposits such as CDs are covered deposit products at FDIC-insured banks.⁴

A fixed annuity is backed by the issuing insurance company’s claims-paying ability. That makes the insurance company, the contract terms and the financial strength of the issuer important components of an annuity.

Before choosing either option, ask:

• What rate applies, and for how long?

• What happens when the term ends?

• What early withdrawal rules apply?

• How does this fit with the rest of my savings and retirement income plan?

7. A fixed annuity offers income options later

This is one of the biggest planning differences.

A CD generally pays interest and returns the money at maturity. It does not offer lifetime income features.

A fixed annuity can offer options to turn annuity value into income later, which as Lo states, “is basically converting a lump sum to a stream of regular, predictable payments.”

DeBoer recommends starting with the full retirement income picture: “Add up all of your income sources, whether that’s a pension, or Social Security, or the interest income from your investments and look at whether there’s a gap that an annuity can fill.”

This makes the comparison more practical. A CD may help with money tied to a specific date or purchase. A fixed annuity can bring predictability as one component in a retirement income strategy.

Why people compare fixed annuities and CDs

People compare fixed annuities and CDs because both can offer more predictability than market-based investments. That appeal is especially relevant for people nearing retirement or already retired.

Mutual of Omaha’s 2026 Annuities Study found that 85% of adults 45+ said it was important that at least some retirement income continues regardless of what happens in the financial markets.* The same study found that 45% value flexibility and predictability equally, while 44% prefer predictability over flexibility.*

That’s why a fixed annuity vs. CD comparison is not as simple as choosing between growth and predictability. A CD can help with money you want available at a known date, while a fixed annuity can fit a longer-term income strategy. The right choice depends on what role the money needs to play in your broader financial picture.

How to compare a fixed annuity and a CD in five questions

Before comparing rates, compare purposes.

When will I need this money?

If you expect to use the money in the near term, a CD may be easier to align with a specific date. If the money is for a longer retirement timeline, a fixed annuity should be part of a broader planning discussion.

How important is access to cash?

If easy access is a priority, review early withdrawal penalties, surrender charges and withdrawal rules carefully. CDs and fixed annuities can both limit access before the end of the term, but they are different.

How will taxes affect the decision?

CD interest is generally taxable when received or available without substantial penalty. Fixed annuity earnings are generally tax deferred until withdrawn.¹ Tax timing may matter if you are trying to coordinate retirement income, Social Security, required minimum distributions or other taxable income.

What happens at the end of the term?

With a CD, you generally decide whether to withdraw, renew or move the money. With a fixed annuity, options depend on the terms and can include continuing the contract, taking withdrawals or considering other income options.

What role should this money play in my plan?

This is the most important question. Is the money for a known expense, a cash reserve, tax-deferred savings or future income? The answer can help determine whether a CD or a fixed annuity can fit best for your situation.

Sources:

*Mutual of Omaha worked with research vendor, quantilope, to conduct research related to Decumulation – the strategic drawdown of assets during retirement years. This research had a sample size of 496 respondents aged 50+ who were already retired (n=327) or nearing retirement (n=169) within the next 10 years. Respondents who stated they did not have at least some assets to draw down during retirement were excluded from the survey. The research was conducted in a 10-minute online survey from October 6-15, 2025. All data included in this report are based on Mutual of Omaha proprietary research unless otherwise noted.

**Mutual of Omaha Annuities Study - Mutual of Omaha worked with research vendor quantilope to conduct a 5-minute online survey of 400 consumers age 45+ with a stated household income of $50,000 or more per year. Research was conducted April 22-28, 2026. All study data cited in this article is based on Mutual of Omaha proprietary research unless otherwise noted.

1. Internal Revenue Service. (2026). Publication 550: Investment income and expenses. https://www.irs.gov/pub/irs-pdf/p550.pdf

2. Consumer Financial Protection Bureau. (2025). Financial terms glossary. https://www.consumerfinance.gov/consumer-tools/educator-tools/youth-financial-education/glossary/

3. Internal Revenue Service. (2025). Publication 575: Pension and annuity income. https://www.irs.gov/pub/irs-pdf/p575.pdf

4. Federal Deposit Insurance Corporation. (2024). Understanding deposit insurance. https://www.fdic.gov/resources/deposit-insurance/understanding-deposit-insurance

Disclosures:

Annuity guarantees are backed by the claims-paying ability of the issuer.

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc.

Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.

Not all Mutual of Omaha agents are registered representatives or financial advisors.