An Annuity Versus a CD
Using a conservative interest rate, a CD paying 3% interest will grow by 56% in
20 years. The same money in a tax-deferred annuity with a 3% interest rate will
grow by 69% in 20 years, resulting in a 13% higher appreciation of your money. If
the tax and interest rates are higher, the difference on the return is even greater
with tax-deferred growth.
This chart illustrates how effective tax deferral can be. A $25,000 initial premium
compounded at 3% annually over 20 years grows to $45,153 with taxes deferred. Once
taxes are paid on the lump sum distribution, the amount received is $42,130, still
much more than the $39,013 earned on a taxable investment over the same time frame.1
