CDs vs. Annuities - Which Is Right For You?
Both CDs and Annuities can be good ways to save for the future
Written by: MyBankFinder
Updated on: April 24th, 2025
CDs vs. Annuities: An Overview
Both Certificates of Deposit (CDs) and Annuities are financial tools often used for safe money growth, but they serve different purposes, operate differently, and appeal to different types of people. Let’s break it down:
What is a CD?​
A Certificate of Deposit is a savings product offered by banks and credit unions. When you invest in a CD, you agree to leave a fixed amount of money untouched for a specific period—ranging from a few months to several years. In return, the bank offers a guaranteed interest rate, and when the term ends, you receive your original deposit along with interest.
​
CDs are known for being safe, simple, and predictable. They are insured by the FDIC up to $250,000, making them an appealing option for conservative savers. However, their low yields and limited flexibility make them less attractive for those looking to grow their money significantly over time.
​
What is an Annuity?
An annuity is a financial product typically issued by an insurance company. It is designed to provide either growth, income, or a combination of both, often used for retirement planning. You can purchase an annuity with a lump sum or a series of payments. In exchange, the insurance company promises either to grow your investment at a set rate (fixed annuity) or based on market performance (indexed or variable annuities), and then pay you income in the future.
​
Unlike CDs, annuities are not just savings tools—they’re income solutions. Many are structured to provide lifetime income, helping protect you from outliving your money, a concern for many retirees today. Check out some of our top picks below:
Who Typically Chooses CDs?
CDs are often used by conservative investors who prioritize safety over return. They're commonly favored by individuals nearing retirement who want to avoid risk and don’t need immediate access to the funds. CDs can also be a temporary parking place for cash that isn’t needed right away.
However, their benefits tend to stop there. In a low interest rate environment, CD returns often fail to keep pace with inflation, and they don’t offer the income solutions many people need as they approach retirement.
Why Annuities Offer More
Annuities, by contrast, are more dynamic. They not only allow your money to grow tax-deferred, but they can also be structured to provide guaranteed income you cannot outlive. This makes annuities especially appealing to those who are planning for retirement or looking to create a more stable financial future.
For example, someone in their 50s or early 60s might use a portion of their savings to purchase a fixed indexed annuity. This provides the opportunity for growth based on market performance—without the risk of market loss—and can later turn into an income stream. In some cases, annuities can even offer enhanced benefits like long-term care protection or spousal continuation options.
When to Consider an Annuity Over a CD
If your goal is simply to preserve capital for a short time, a CD may suffice. But if you're thinking long-term—especially about income in retirement—an annuity offers features a CD cannot match. With the ability to grow tax-deferred, generate lifetime income, and even protect against market losses (in certain types), annuities are more than just a savings tool. They're a strategy.
The Bottom Line
While both CDs and annuities have their place in a well-rounded financial plan, annuities are often the smarter choice for those looking to not just save money, but to make it work for them. They offer protection, growth, and income—key pillars of a secure retirement strategy.
​
Before making a decision, consider your time horizon, income needs, and risk tolerance. And as with any financial product, speak with a licensed professional who can help you determine what’s best for your unique goals.
Why People Trust MyBankFinder
Over 350,000 have chosen a bank with MyBankFinder
Trusted by the largest financial institutions in the country
Over 4 million people reached helping visitors all over find their bank
Powerful tools helping users make informed financial decisions
YOUR TRUSTED RESOURCE FOR FINANCIAL INFORMATION
