Fixed Annuity vs. Certificate of Deposit (CD) vs. Treasury Note: Which Wins for Five-Year Safe Money?

7 min read · Last updated October 13, 2026

A five-year MYGA currently pays the highest stated rate at 6.65%, while a bank CD trails both and stays fully taxable at every level. The Treasury note’s 5.033% yield often wins after state income tax, since its interest skips state tax entirely.

In this article

• MYGA vs CD vs Treasury note: five-year rates compared
• Fixed annuity (MYGA): lock the rate, watch the surrender schedule
• Certificate of deposit (CD): FDIC insurance, lower yield
• Treasury note: best after-tax yield in high-tax states
• Choose the right option for your five-year money
• What could change the calculus
• Frequently asked questions

Twenty thousand dollars parked for five years can earn roughly $7,595 in a fixed annuity, $5,566 in a Treasury note, or $1,419 in an average CD, before tax. The gap comes down to rate, tax treatment, and how much penalty you risk by needing the cash early.

MYGA vs CD vs Treasury Note: Five-Year Rates Compared

Each option solves a different problem: the MYGA locks the top rate, the Treasury note protects state-tax dollars, and the CD offers plain FDIC-insured simplicity.

Factor	MYGA	CD	Treasury Note
Current 5-year rate	6.65% (Knighthead Life)	1.38% national average	5.033% (Sept. 2026 auction)
How interest is taxed	Deferred, then ordinary income at withdrawal (federal and state)	Ordinary income yearly (federal and state)	Ordinary income yearly (federal only; state and local exempt)
Early withdrawal cost	Surrender charge from 8.5% down to 0% over 6 years	Bank-set penalty, often several months of interest	No penalty; sell anytime at the market price
Who stands behind it	Insurer’s claims-paying ability, state guaranty association	FDIC, up to $250,000 per depositor per bank	Full faith and credit of the U.S. government
Best for	Locking the top rate for money you won’t touch for 5 years	Depositors who want FDIC insurance and in-person banking	High-tax-state savers who may need to sell before year 5

Fixed Annuity (MYGA): Lock the Rate, Watch the Surrender Schedule

A Multi-Year Guaranteed Annuity (MYGA) is a contract with an insurance company that locks a fixed rate for a set term, here five years. Knighthead Life, rated A- by AM Best, quotes 6.65% for its five-year product as of October 13, 2026.

Interest compounds inside the contract and isn’t taxed until you withdraw it. At withdrawal, the gain is taxed as ordinary income at both the federal and state level, so the deferral delays tax rather than erasing it.

Pull money out early and the surrender schedule applies: 8.5% in year one, down to 8%, 7%, 6%, and 5% through year five, then 0% after that. A market value adjustment can shift that further. On $20,000 held the full five years, 6.65% compounded annually grows the balance to about $27,595, a gain of $7,595 before the withdrawal tax bill.

A MYGA is not FDIC-insured. If the issuing insurer fails, your state’s guaranty association steps in instead of a federal backstop. Coverage limits are set state by state.

Most states cap annuity protection well below the $250,000 figure the FDIC uses for bank deposits. A $20,000 MYGA sits comfortably under nearly every state’s limit, but a much larger contract might not. Checking the specific carrier’s financial strength rating, and your own state’s coverage cap, matters more here than it does with a CD or a Treasury note, since neither of those carries this kind of issuer-failure risk at all.

That is part of why Knighthead Life’s A- AM Best rating is worth confirming before you buy, not just its advertised 6.65% rate.

Certificate of Deposit (CD): FDIC Insurance, Lower Yield

A certificate of deposit (CD) is a timed bank deposit insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor per bank. The FDIC’s national average rate for a 60-month CD was 1.38% as of September 21, 2026.

That average blends thousands of banks, including many paying far less, so a competitive online bank or credit union can pay meaningfully more. Even so, CDs rarely match the current MYGA or Treasury note rate.

Interest is taxed as ordinary income every year it’s earned, both federally and by your state. On $20,000 at 1.38% compounded annually for five years, the balance reaches about $21,419, a gain of only $1,419 before tax. Early withdrawal before maturity typically forfeits several months of interest, set by the bank’s own disclosure.

Treasury Note: Best After-Tax Yield in High-Tax States

A Treasury note is a debt obligation of the U.S. government. The 5-year note auctioned on September 23, 2026 carried a 5% coupon and sold at a 5.033% high yield, the Treasury’s own posted result.

Interest is taxed federally every year, but under the United States Code (U.S.C.), specifically 31 U.S.C. Section 3124, it is exempt from state and local income tax, a point the Internal Revenue Service (IRS) confirms directly. That exemption is worth more as your state bracket rises.

You can sell a Treasury note before five years on the secondary market, with no surrender charge. The price moves with interest rates, though, and could land above or below face value. On $20,000 compounded at 5.033% for five years, the balance reaches about $25,566, a gain of $5,566, taxed federally only.

Choose the Right Option for Your Five-Year Money

Choose the MYGA if you want the single highest guaranteed rate and you’re confident you won’t need the money before the surrender schedule clears.

Choose the Treasury note if you live in a state with income tax, want the best realistic after-tax yield, and may want to sell before year five without a penalty.

Choose the CD if FDIC insurance and a familiar local bank relationship matter more to you than squeezing out the last basis point of yield.

What Could Change the Calculus

Rates move. MYGA pricing resets as carriers reprice against Treasury yields, the FDIC updates its national average monthly, and the next 5-year note auction can clear higher or lower than 5.033%. Check current figures before committing.

State guaranty association limits and surrender terms vary by carrier and by state, so confirm both on the actual contract, not a marketing page. If your time horizon is shorter than five years, the math shifts toward different tools.

Compare high-yield savings vs. money market accounts vs. Treasury bills or a money market fund vs. no-penalty CD vs. Treasury bill ladder instead.

Frequently asked questions

Is Treasury note interest really exempt from state income tax? Yes. Under 31 U.S.C. Section 3124, interest on U.S. Treasury securities is exempt from state and local income tax, though still taxable federally. The IRS confirms this treatment in its own guidance on taxable interest. The exemption applies automatically; no special election is needed when you file.

What happens if I need my MYGA money before five years? You’ll likely pay a surrender charge, often starting near 8.5% in year one and declining toward 0% by year six, plus a possible market value adjustment. Some contracts allow a penalty-free withdrawal of interest or up to 10% of the balance yearly. Check your specific contract first.

Is a 5-year CD fully FDIC insured? Yes, up to $250,000 per depositor, per insured bank, per ownership category. A joint account or accounts at a second bank can extend that coverage further. Balances above the limit at a single bank, in a single ownership category, are not insured.

Which pays more after tax, a MYGA or a Treasury note? It depends on your state tax rate. The MYGA’s 6.65% headline rate is higher, but it’s taxed by your state at withdrawal. The Treasury note’s 5.033% skips state tax entirely, so in high-tax states the after-tax gap narrows or can flip.

Can MYGA rates change after I buy? No, once you lock in a MYGA rate for its term, that rate is guaranteed for the full period, typically five years here. Only new purchases are priced at the current rate. Renewal rates after the term ends are reset separately and can be higher or lower.