Definition

• The Merriam-Webster Dictionary defines a certificate of deposit (CD) as "a money-market bond of a preset face value paying fixed interest and redeemable without penalty only on maturity." What exactly does that mean? Well, a CD is very similar to a savings account, in that you place the money in an account, it collects interest and you may withdraw it later. The difference is that with a CD, you must keep all the money in the account for a fixed amount of time, determined beforehand. Also, interest rates are higher on CDs.
  
  An annuity is defined by the Merriam-Webster dictionary as "a sum of money payable yearly or at other regular intervals." In other words, an annuity is an investment that can be paid in one lump sum, or in installments. There are two types of annuities: fixed and variable. Fixed annuities have a fixed interest rate that collects as the annuity matures. Variable annuities make investments in the stock market, and their rates fluctuate with the ebb and flow of the market.
  
  

Taxes

• One of the key differences between CDs and annuities is the way they are taxed. CDs are taxed annually by the government. However, annuities are tax-deferred, which means that taxes are added up but not collected by the government unless money is withdrawn from the annuity. Most annuities also have clauses which will allow the account holder to withdraw the money tax-free at a set retirement age.
  
  

Insurance

• Another major difference between CDs and annuities is that annuities are given out and insured by insurance companies. CDs, on the other hand, are issued by banks and therefore are insured by the Federal Deposit Insurance Corporation (FDIC).
  
  

Returns

• Both annuities and CDs are attached to interest rates, which determine your return. However, annuities have a guaranteed minimum interest rate, which means the rate will never fall below that guaranteed amount no matter the market fluctuation. Generally, with both CDs and annuities, the higher the interest rate, the higher the return.
  
  

Risk

• Because CDs are insured by the FDIC, they are risk free, and your money is insured up to a certain amount (usually it is up to $100,000, but check with your bank for the exact amount).
  
  Annuities are also considered low risk since they are given out by insurance companies. However, it is wise to make sure the company you are dealing with is financially sound. Even so, the government has certain safeguards in place that make insurance companies have contingency plans.