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  • Writer's pictureBob Brooks

CDs Versus Fixed Annuities Versus High Yield Savings Account – Which is the Best Choice?

The environment of money is much different after the Federal Reserve Board started raising interest rates. Over the past year or so, investors have woken up to much better options when it comes to fixed-interest accounts. Today, I wanted to go through the three best options for your savings/safe money category.

First, how about some informal definitions - A CD, or certificate of deposit, is an account that pays a guaranteed rate of return for a guaranteed time period. A fixed annuity is essentially the same thing, except it is offered through insurance companies. A High-Yield savings account carries a much higher interest rate than a bank savings account. The rate on any of the above accounts can change up or down and is not locked in for any specific period.

Interest Rates

For shorter-term periods such as 1-year terms, CDs are paying the best rate for short-term options. The best 1-year rate I could find as of today is 5.2% for a year. A 1-year fixed annuity is paying 4.4%. However, if you extend the term or number of years, the guaranteed rate locks in from 5% to 5.45%. Remember, CDs and fixed annuities are held for a specific time period.

A High-Yield Savings account is liquid and not based on a term and/or a guaranteed rate. The latest one I came across at Fidelity was paying 4.75%. Think of it as an emergency account on steroids. Obviously, if rates started to come back down in these high-yielding savings accounts, rates should come down as well.


There is a penalty for taking your money out of a CD or Annuity before they are due. The penalty is much steeper on annuities than on CDs during the guaranteed term. High-Yield Savings Accounts generally don’t have penalties.

Tax Advantages

With a non-IRA CD or High-Yield Savings, you pay taxes on interest earned as you go. With Fixed Annuities, you don’t pay taxes on earnings until you remove money from the account. The growth in fixed annuities are tax-deferred.

Pre- 59 ½ Penalty

Annuities have an additional IRS penalty if you remove the money from the account before age 59 ½. High-Yield savings accounts and CDs don't have that penalty. Understand that rule before considering one. They are different rules based on whether you have an IRA or non-IRA account.

Which one Is better?

For money that you need to keep liquid, there is nothing better than a High-Yield Savings Account. They are paying great rates (at least for now), and you should always have penalty-free access to your funds. However, if you are looking for longer-term guarantees, this isn’t the account for you.

For now, 1-year CDs have the edge for shorter terms. If you want to lock in that little bit of extra interest for the short-term, then CDs are a good 1-year alternative. Fixed annuities actually offer a 1-year term, too. At least for now, it is at a lower interest rate than CDs currently being offered.

If you want to lock in longer terms with solid interest rates, fixed annuities are hard to beat. Fixed Annuities can be a great bond-type replacement and a longer-term guaranteed part of a portfolio. For shorter-term periods, I would still give an edge to High-Yield Savings accounts because of the liquidity benefit.

DISCLAIMER – Read the fine print before you commit to any time period. There could be disadvantages that are not spelled out in the article above. Further, interest rates and time periods can change. This is based on the current environment as written on 5/21/23.

If you have further questions for Bob, please visit the Ask a Question page on the website, and Bob will get back to you.


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