What They Have in Common
Both fixed annuities and bank CDs offer a guaranteed interest rate for a set period and are generally considered conservative, principal-focused options.
Key Differences
| Feature | Fixed Annuity | Bank CD |
|---|---|---|
| Guarantee backing | Claims-paying ability of the issuing insurance company | FDIC insurance up to applicable limits |
| Tax treatment | Growth is generally tax-deferred until withdrawal | Interest is generally taxable each year it's earned |
| Liquidity | Surrender charges may apply beyond free withdrawal allowance | Early withdrawal penalty, but typically shorter terms available |
| Income option | Can often be converted to a guaranteed income stream | Not designed for this purpose |
Key Takeaways
- Fixed annuities are backed by the issuing insurer's claims-paying ability; CDs are backed by FDIC insurance.
- Annuity growth is generally tax-deferred; CD interest is generally taxed annually as earned.
- Annuities offer the option to convert savings into guaranteed lifetime income; CDs do not.
This comparison is general and educational. FDIC insurance limits and annuity guarantee terms vary — confirm current details with your bank and with the annuity issuer's disclosure documents. Not a recommendation to purchase either product.
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