What is a CD annuity?

That is a very interesting question with an even more interesting answer. The fact of the matter is that there really is no such thing as a CD annuity. A certificate of deposit (CD) is issued by a bank, whereas an annuity is issued by an insurance company. Why then do so many people refer to certain types of annuity products as CD annuities?

Are CDs better than fixed annuities?

Still, it’s worth your time to compare top rates on CDs and fixed annuities from various financial institutions before deciding which option is better for you. CDs and fixed annuities are similar because in the end, you’re guaranteed to receive your principal investment plus a certain amount of interest.

How does the IRS tax annuities & CDs?

You should note that the IRS taxes annuities and CDs differently. A CD’s principal balance doesn’t face taxes, though interest earned does. How the IRS taxes annuities depend on how they are structured and funded. Annuities funded with pre-tax dollars are taxed upon withdrawal of funds.