Can A Fixed Annuity Beat Your CD Rate? Fixed annuities are sometimes called CD Alternatives and have become very popular. Paying higher guaranteed rates than CD's and deferring taxes, many people looking for safe investments find that a fixed annuity is a better option than low interest CD's or money market accounts. Like a CD, you can place lump sums of money in an annuity. You must leave the money in the annuity for a period of years, usually between 2 and 5 years. The longer you leave the money in, the higher your interest rate will be. Depending on the annuity purchased, a yearly amount is allowed to be withdrawn without a penalty. This amount is usually around 10%. Three main benefits No risk of loss ("fixed" annuities). Unlike other forms of stock or fund investments, a fixed annuity is invested in mutual funds or are tied to the stock market performance may include minimum guarantees to limit the amount of investment risk. No probate in case of death, as long as you specify beneficiaries. Which means your family will find it easier and less costly to obtain the value of the fixed annuity. No-penalty annual withdrawals. Most fixed annuities have a provision that allows you to withdraw a certain amount per year penalty free. Three main downsides Surrender Charges. Just as CD's have penalties if you remove your investment before maturity fixed annuties surrender charges tend to be higher. Fixed Annuities are not FDIC insured they are protected only by the financial stability of the insurance company. It is improbable that you can find a 1-year annuity maturity at least from a strong financial institution. If you are willing to forgo the FDIC guarantee and trust the financial strength of an insurance company for 3 years, an annuity is an excellent way to earn much more than the average CD rate.