A. It depends on your specific purpose. We will compare fixed annuity and CD in the following features -
1. Financial Backing
CDs are issued by banks and have FDIC protection. Fixed annuities are issued by insurers and we typically use AM Best rating to evaluate insurers. Fixed annuities are also protected by State Guarantee Funds which typically have $300,000 protection for annuities (although they vary by state).
2. Interest Rates
Fixed annuities typically have higher interest rates than CDs.
3. Taxation
Fixed annuities provide tax-free growth feature. CDs' earnings are taxable each year.
4. Early Withdrawals
CDs typically do not allow early withdrawals without penalty. Fixed annuity products typically allow a certain percentage of contributions for early withdrawals. However, if the withdrawal is before age 59.5, the earning is subject to 10% IRS penalty.
5. Income Option
CD has no income option, and fixed annuity could provide a life time income guarantee.