Annuity vs Treasury Bonds (I Bonds, T-Bills): A Side-by-Side

Treasuries and fixed annuities both aim to pay a known return without stock market exposure, but the promises come from different places. Treasury securities carry the backing of the US government and their interest is exempt from state income tax. A fixed annuity is backed by the issuing insurer, is not FDIC insured, and locks a rate for a longer term.

Picture two ways to park a car downtown. One is a meter: cheap, simple, and you feed it again every few months at whatever the rate happens to be that day. The other is a garage space rented for five years at one price, written on a contract, with a fee if you break the lease early.

Neither is the clever choice. If you need to move the car around, the meter is obviously right. If you know the car is staying downtown until 2031, the fixed price might be worth more than the flexibility you gave up.

Treasury bills and a multi-year guaranteed annuity, or MYGA, sit almost exactly in that relationship. Both live in the conservative part of a plan. Both avoid stock market risk to principal. They differ on who is making the promise, how long the promise lasts, and what the tax bill looks like. This is the side-by-side, without a thumb on the scale.

What is the real difference between a Treasury and an annuity?

The real difference is who owes you the money. A Treasury security is debt issued by the United States government, backed by its full faith and credit, and it trades on an open market. An annuity is a contract with an insurance company, backed by that company’s claims-paying ability, and it does not trade anywhere.

There is a second difference underneath that one: Treasuries are marketable, so their prices move with interest rates if you sell before maturity, while an annuity has no daily market price at all. We cover that price mechanic in depth in annuity vs bonds, so this guide focuses on the government-backed side of the bond world specifically.

Where do the yields stand today?

Both sides move, so treat every number here as a dated snapshot rather than a rule.

The Treasury figures come from the US Department of the Treasury’s Daily Treasury Par Yield Curve Rates for September 1, 2026, which posted 3.85 percent at one month, 3.92 percent at three months, 4.00 percent at six months, 4.18 percent at one year, 4.39 percent at two years, 4.55 percent at five years, and 4.79 percent at ten years.

The annuity figures are a snapshot from the rate feed behind our MYGA rates pages, pulled September 2, 2026. Top of that feed by term: 5.20 percent for two years from Axonic Insurance, rated A minus by AM Best with a $100,000 minimum; 6.00 percent for three years from Revol One Financial, rated B plus plus with a $10,000 minimum; 6.25 percent for five years from Wichita National, rated B plus with a $10,000 minimum; and 6.35 percent for seven years from Aspida, rated A minus with a $100,000 minimum.

Who stands behind each promise?

Treasuries are backed by the full faith and credit of the United States government. A fixed annuity is backed by the claims-paying ability of one insurance company, is not FDIC insured, and is not bank guaranteed. That is the single most important asymmetry in this comparison and it does not go away at any rate.

The row that decides most conversations is the second to last one on taxes and the third one on liquidity. The row people should read twice is the first.

How does a T-bill ladder compare with a MYGA?

A T-bill ladder is a legitimate alternative that solves the liquidity problem an annuity creates, at the cost of the rate certainty an annuity provides. It is not a straw man, and plenty of retirees run one well.

The trade in one sentence: the T-bill ladder keeps repricing, which helps you when yields rise and hurts you when they fall, while the MYGA settles the rate for the term and charges you for leaving early.

What do I bonds actually do?

I bonds are a different animal from both T-bills and annuities, because their rate is designed to move with inflation rather than to be locked or auctioned. Each I bond earns a composite rate built from a fixed rate that lasts for the life of the bond and an inflation rate that resets every six months.

• The current composite rate is 4.26 percent for I bonds issued from May 1, 2026 through October 31, 2026, built on a 0.90 percent fixed rate, according to TreasuryDirect’s May 1, 2026 rate announcement.
• The rate is not locked. The inflation component resets every six months, so the yield you start with is not the yield you keep.
• There is a one-year minimum hold. I bonds cannot be redeemed at all during the first twelve months.
• Early redemption costs interest. Cashing an I bond before five years forfeits the most recent three months of interest, per TreasuryDirect.
• Purchases are capped. Electronic I bond purchases are limited to $10,000 per person per calendar year, which puts a ceiling on how much of a plan they can carry.
• Federal tax can be deferred. Interest is generally not taxed until redemption, and I bond interest is generally exempt from state and local income tax.

For a household trying to protect purchasing power on a modest amount of money, that combination is genuinely useful. For a household trying to place several hundred thousand dollars, the annual purchase limit answers the question by itself.

Does the state tax angle change the math?

It can, and it is the piece most comparisons skip. Interest on Treasury securities is generally exempt from state and local income tax, while annuity growth generally is not, so a Treasury yield and an annuity rate are not directly comparable in a state with an income tax.

What does each one give up?

Both give up something real, and any comparison that lists downsides for only one product is selling you something.

• Treasuries give up rate certainty beyond the maturity you buy. A short ladder reprices constantly, and long maturities lock a lower yield than short ones did in some environments.
• Treasuries give up tax deferral. Interest is generally taxable federally in the year earned, whether or not you spend it.
• Treasuries give up price stability if you sell early. Market value moves with rates until maturity.
• Annuities give up federal backing. The promise is one insurer’s, not the government’s, which is why the AM Best rating attached to a quoted rate is part of the offer.
• Annuities give up liquidity. Surrender charges and possible market value adjustments apply during the term, and gains taken before age 59 and a half may add a 10 percent IRS penalty.
• Annuities give up the chance to reprice. If rates rise during your term, your money stays at the older rate until the term ends.

Which one fits the job?

Start with when you need the money, because that question resolves most of this comparison before any yield gets compared. Run through this before you decide.

• Timeline. I know whether this money is needed inside twelve months or can sit for several years.
• Backing. I understand that Treasuries carry federal backing and an annuity carries a single insurer’s claims-paying ability, and I have checked the carrier’s rating.
• Taxes. I know my state’s income tax situation and have accounted for the Treasury exemption.
• Liquidity. I know the surrender schedule on any annuity I am considering, and I have money elsewhere for emergencies.
• Current numbers. I am comparing today’s dated Treasury yields against today’s dated annuity rates, not last year’s memory of either.
• Matched terms. I am comparing similar maturities, not a three-month bill against a seven-year contract.

Moving forward

Back to the meter and the garage. The meter keeps you free and keeps you exposed to whatever the rate is next time you feed it. The garage settles the number for years and charges you for breaking the lease. Most plans end up using both, with short government-backed holdings for money in motion and a longer contract for money with a date on it.

The comparison only works with live numbers. Pull the current Daily Treasury Par Yield Curve for the maturities you are considering, then check our date-stamped MYGA rates and the broader rates page for the matching terms. Bring both to someone who can weigh the carrier rating, the surrender schedule, and your state tax picture together, rather than ranking two numbers side by side and calling it a decision.

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