Fixed Annuity vs. Bank CD Calculator

Fixed annuities and bank CDs are both conservative, fixed-rate vehicles, but they're taxed very differently. CD interest is taxed every year as you earn it, which quietly drags on compounding. A fixed annuity grows tax-deferred, meaning you owe nothing until you withdraw, so the full balance compounds untaxed for years. That difference can let an annuity beat a CD even at a similar headline rate.

To see the underlying compounding mechanic in more detail, try our compound interest calculator.

This calculator grows both options to the end of your term and applies the taxes to each, revealing which leaves you with the larger after-tax balance.

How does this calculator work?

Enter a beginning value and the rates offered by a fixed annuity and a taxable account (such as a bank CD), plus your term and marginal tax rate.

The taxable interest is taxed every year, so the calculator models it at a reduced after-tax rate, while the annuity grows tax-deferred with gains taxed only at withdrawal.

The result compares both after-tax balances so you can see which option actually leaves you with more.

Worked example

Put $100,000 in each for 10 years: a fixed annuity at 4.5% (tax-deferred) versus a CD at 4.5% (taxed yearly), at a 24% tax rate.

Starting value (each)

$100,000

Rate / term

4.5% / 10 yrs

CD after-tax (taxed yearly)

$139,973.34

Annuity before tax

$155,296.94

Annuity after tax at withdrawal

$142,025.68

How the numbers work

The CD's interest is taxed every year, so it effectively grows at 4.5% × (1 − 0.24) = 3.42%; over 10 years $100,000 becomes $139,973.34.

The annuity grows untaxed at the full 4.5% to $155,296.94, and tax is applied just once at the end: 24% on the $55,296.94 gain, or $13,271.27, leaving $142,025.68.

The annuity's edge is simply that nothing was skimmed off along the way to slow the compounding; the same 4.5% rate produces more because tax was deferred.

At the same 4.5% rate, the annuity edges out the CD after tax, $142,025.68 vs $139,973.34, purely because its gains compounded untaxed until the end instead of being trimmed every year.

The gap widens with longer terms, higher rates, and higher tax brackets. But this compares growth only; annuities carry trade-offs the math doesn't capture.

What the growth comparison leaves out

Tax deferral is real, but annuities come with strings. Surrender charges can lock up your money for years, with steep penalties for early withdrawal. Gains taken before age 59½ generally face a 10% IRS penalty on top of ordinary income tax. And annuity guarantees are only as strong as the issuing insurer, whereas bank CDs carry FDIC insurance up to the limits.

Liquidity also differs: a CD's early-withdrawal penalty is usually a few months' interest, far milder than a surrender charge. Use this tool to compare growth, then weigh access, safety, and fees before deciding.