MYGA vs CD Calculator (2026): The After-Tax Math Most Savers Never Run
A multi-year guaranteed annuity and a bank CD look like the same product sold by different companies. Both lock a fixed rate, both protect principal, both have a stated term. The difference that decides which one puts more money in your pocket is not the headline rate – it is what the tax code does to the interest while it compounds, and what happens to your balance if life forces you out early. This calculator runs all three legs of the decision – MYGA, bank CD, and Treasury – on an after-tax basis over your actual horizon, then shows the year where the annuity stops losing to its surrender charge and starts winning.
The results surprise most people in both directions. At October 2026 rates a 5-year MYGA can beat the best 5-year CD by roughly $15,000 on a $250,000 deposit – but the same contract sits about $8,700 behind that CD if you surrender it in year one. Meanwhile a 5-year Treasury near 5.00% quietly beats both for anyone under 59½ who would owe the 10% federal penalty on annuity gains. The tool prices every one of those outcomes instead of arguing about them.
MYGA vs CD vs Treasury Calculator
| Withdraw in year | MYGA after tax | CD after tax | Treasury after tax |
|---|
The rest of this page walks through the numbers the calculator produces, starting with the rate environment you are actually shopping in this month and ending with the specific contract terms that decide whether the annuity advantage survives contact with real life.
What a MYGA Actually Is
A multi-year guaranteed annuity is the simplest product the annuity industry sells. You hand a carrier a single premium, the carrier credits a fixed rate for a fixed number of years, and at the end of the term you can take the cash, renew at the then-current rate, annuitize it into lifetime income, or move it to another carrier by 1035 exchange without tax. There is no market index, no participation rate, no crediting cap, and on most contracts no explicit fee - the carrier's margin is built into the rate it offers rather than deducted from your account.
That structure makes it the closest thing the insurance industry has to a certificate of deposit. The two products hold your principal, pay a fixed rate, and penalize early exit. What separates them is the balance sheet behind the promise and the tax treatment of the interest. A CD is a deposit liability of a bank, insured by the FDIC up to $250,000 per depositor per institution. A MYGA is a general account obligation of an insurance company, backed by its reserves and - if the carrier fails - by your state's life and health guaranty association, which typically covers $250,000 of present value per owner, though the limit varies by state.
Neither guarantee is unlimited, and the difference matters at larger balances. A $750,000 deposit is fully FDIC-insured only if it is split across three banks. The same $750,000 in a single MYGA exceeds most state guaranty limits, so the excess depends on the carrier's own financial strength. That is why the rating of the company - A+ or better from AM Best - matters more on a MYGA than it does on a CD.
The Rate Landscape in October 2026
The comparison only matters because of the size of the current spread. Best-available five-year MYGA rates have been running well above the best five-year CD rates all year, and the five-year Treasury has climbed into the same territory after the September Federal Reserve meeting. Here is the field as of mid-October 2026:
| Product (5-year) | Indicative rate, Oct 2026 | Tax treatment | Backstop |
|---|---|---|---|
| Top multi-year guaranteed annuity | 5.80% to 6.30% | Deferred until withdrawal | Carrier plus state guaranty association |
| Top nationally available bank CD | 4.50% to 4.95% APY | Taxed annually as interest | FDIC, $250,000 per depositor per bank |
| 5-year Treasury note | about 5.00% | Federal tax only, state-exempt | Full faith and credit of the United States |
| National average 5-year CD | about 1.79% APY | Taxed annually as interest | FDIC, $250,000 per depositor per bank |
| Fed funds target range | 3.75% to 4.00% | Not a consumer product | Policy rate benchmark |
Two things stand out. First, the gap between the average CD and the best CD is enormous - nearly three percentage points - so "CD rates" as a category tells you almost nothing. Second, the Treasury at roughly 5.00% now sits between the best CD and the best MYGA, and because Treasury interest escapes state income tax entirely it can beat a nominally higher MYGA for a saver in a high-tax state. That is the case the calculator is built to expose.
Why Tax Deferral Is Worth Less Than the Rate Gap, and More Than You Think
Deferral does not make interest tax-free. It moves the tax bill to the end and lets the money that would have gone to the IRS keep compounding in the meantime. That is worth something, but it is not magic: the benefit is roughly the tax you defer multiplied by the growth you earn on it. What actually drives the MYGA result is the rate spread - the annuity earns more before tax, and then the deferral adds a modest second layer on top.
Run the two effects separately on a $250,000 deposit over five years in the 24% federal bracket with a 5% state tax. A CD at 4.50% keeps only 71 cents of each interest dollar, so it compounds at 3.19% and ends at $292,572. Put the same 4.50% inside a tax-deferred MYGA and you end at $293,697 - deferral alone is worth $1,125 over five years. The rest of the current annuity advantage, about $14,700, comes entirely from the rate spread: at 5.85% the MYGA finishes at $308,359. Deferral is the bonus, not the argument.
This is why a low-rate MYGA is a bad deal even though the tax treatment is friendly. A 4.60% MYGA that ties up your money for five years and charges a surrender penalty for early exit loses to a 5.00% Treasury that has no penalty and no pre-59½ tax problem. The calculator will show you exactly that result when you move the sliders.
After-Tax Outcome by Horizon
The same three products, the same $250,000 deposit, the same 24% federal and 5% state tax assumption, held for four different terms. Every number below comes from the calculator's own engine at default rates of 5.85% MYGA, 4.50% CD, and 5.00% Treasury:
| Horizon | MYGA after tax | Bank CD after tax | Treasury after tax | MYGA edge over CD |
|---|---|---|---|---|
| 3 years | $283,009 | $274,736 | $279,597 | +$8,273 |
| 5 years | $308,359 | $292,572 | $301,250 | +$15,787 |
| 7 years | $336,762 | $311,566 | $324,580 | +$25,195 |
| 10 years | $385,906 | $342,394 | $363,006 | +$43,511 |
The edge widens with time because the CD's tax drag is applied to a growing base every single year while the MYGA's is applied once. A three-year commitment produces a respectable $8,273; a ten-year commitment produces $43,511. That progression is also the honest argument against stretching a MYGA term just to chase the highest rate: the longer contract increases the chance that something in your life forces an early surrender, and the surrender charge is steepest in exactly those early years.
The Break-Even MYGA Rate, by Tax Bracket
The most useful question is not "which product wins" but "how much of a rate advantage does the MYGA need to win." Solve for the annuity rate that exactly matches a 4.50% CD after tax, and the answer barely moves across brackets:
| Federal bracket (5% state) | MYGA rate needed to match a 4.50% CD | MYGA at 5.85% | CD after tax | MYGA edge |
|---|---|---|---|---|
| 12% | 4.44% | $318,223 | $300,308 | +$17,915 |
| 22% | 4.40% | $310,003 | $293,850 | +$16,153 |
| 24% | 4.39% | $308,359 | $292,572 | +$15,787 |
| 32% | 4.36% | $301,783 | $287,505 | +$14,279 |
| 35% | 4.35% | $299,318 | $285,622 | +$13,695 |
| 37% | 4.35% | $297,674 | $284,373 | +$13,301 |
The break-even rate falls as the bracket rises, which is the opposite of what most savers expect. A high-bracket saver needs less of a MYGA rate advantage because the CD is being hit harder by annual tax while the annuity defers it. What does shrink with a higher bracket is the absolute dollar edge, because the MYGA's own tax bill at withdrawal is larger. The practical rule: in any bracket, a MYGA that pays more than about 4.4% beats a 4.50% CD, and the current market pays around 5.80% to 6.30%.
The Surrender Charge Trap: What Leaving Early Really Costs
Every MYGA advantage calculated above assumes you hold to the end of the contract. Most contracts charge a declining surrender fee on anything you withdraw above the annual free-withdrawal amount, which is typically 10% of the premium. On a 5-year contract the schedule usually runs 7%, 7%, 6%, 5%, and 4% of the amount withdrawn. Watch what that does to the same $250,000 at 5.85%:
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| Withdraw in year | MYGA after surrender and tax | Surrender charge | CD after penalty | MYGA vs CD |
|---|---|---|---|---|
| Year 1 | $243,610 | $16,774 | $252,362 | -$8,752 |
| Year 2 | $253,518 | $17,857 | $260,605 | -$7,088 |
| Year 3 | $266,720 | $16,290 | $269,111 | -$2,392 |
| Year 4 | $280,882 | $14,442 | $277,889 | +$2,993 |
| Year 5 | $308,359 | $0 | $292,572 | +$15,787 |
The crossover is in year four. For three full years the annuity is behind a CD that pays 135 basis points less, purely because of the surrender charge. A CD's early-exit penalty is usually six months of interest - irritating, but not principal-destroying. The lesson is not that MYGAs are dangerous; it is that a MYGA is a commitment instrument. Money you might need for a roof, a medical bill, or a family emergency inside the term belongs somewhere without a 7% exit fee.
The Two Guarantees Are Not the Same Guarantee
The safety comparison is where annuity marketing gets loose. "Guaranteed" means different things in a bank disclosure and an insurance contract, and the difference is worth understanding before you move a large balance.
| Feature | MYGA | Bank CD | Treasury note |
|---|---|---|---|
| Principal protection | Carrier general account | FDIC insured to $250,000 per depositor per bank | US government full faith and credit |
| Backstop if issuer fails | State guaranty association, commonly $250,000 present value | Federal deposit insurance | No credit risk |
| Interest taxation | Deferred, ordinary income at withdrawal | Annual 1099-INT, ordinary income | Annual federal, exempt from state and local |
| Penalty for early access | Surrender charge plus market value adjustment | Typically 3 to 12 months of interest | None, but selling early carries price risk |
| Pre-59½ IRS penalty | 10% of the gain on non-qualified money | None | None |
| Free liquidity | Usually 10% of premium per year | None without penalty | Any amount, at market price |
| Beneficiary transfer | Named beneficiary, avoids probate | Payable on death if designated, otherwise estate | Transfer on death registration if elected |
| Lifetime income option | Yes, by annuitization | No | No |
| Fees | Usually none explicit; margin in the rate | None; early exit penalty only | None at auction |
| Best for | Money you can lock past 59½ in a high bracket | Money you may need, in modest amounts | Taxable-account money in a high-tax state |
The probate point is easy to miss and genuinely valuable. A MYGA with a named beneficiary passes outside probate, the same way a life insurance death benefit does, while a CD without a payable-on-death designation can drag your family through the surrogate's court. For an older saver whose main concern is a clean transfer, that structural feature can be worth more than a few basis points. It is also why annuities appear so often in estate planning conversations alongside estate liquidity planning.
Worked Example: $250,000 for Five Years
Follow one deposit all the way through. You are 62, in the 24% federal bracket, live in a state with a 5% income tax, and have $250,000 you will not need for five years. The three candidate products pay 5.85%, 4.50%, and 5.00% respectively.
- MYGA at 5.85%: the balance compounds untaxed to $332,196. Withdrawing it produces $82,196 of ordinary income taxed at 29% combined, a bill of $23,837. You keep $308,359. No 10% penalty applies because you are past 59½. Effective annual return: 4.29%.
- CD at 4.50%: tax takes 29% of every interest payment, so the account compounds at 3.19% and ends at $292,572. You paid $18,973 of tax along the way, and there is nothing left to pay at maturity. Effective annual return: 3.19%.
- Treasury at 5.00%: only federal tax applies, so the note compounds at 3.80% and ends at $301,250, with $17,821 of tax paid over the five years. Effective annual return: 3.80%.
The MYGA wins by $15,787 over the CD and $7,109 over the Treasury. Note what the tax bill looks like from the saver's seat: the MYGA pays the most tax in dollars and still ends with the most money, because the deferred tax itself compounded for five years. Chasing the smallest tax bill is not the same as maximizing what you keep.
Who a MYGA Fits, and Who Should Skip It
- It fits savers over 59½ in a 22% bracket or higher who have a defined five- to seven-year horizon, an emergency fund already funded elsewhere, and a sum large enough that the tax deferral is measurable rather than theoretical.
- It fits retirees using the annuity as the conservative sleeve of a portfolio, especially when the lifetime income option is part of the long-term plan and the contract can later be converted to a qualified longevity annuity or annuitized for income.
- It fits anyone who values a named beneficiary and a probate-free transfer more than the last 20 basis points of yield.
- Skip it if you are under 59½ with non-qualified money - the 10% penalty on the gain can erase the entire advantage, which the calculator shows the moment you drop the age slider below 59.5.
- Skip it if the money is a rainy-day fund, a home down payment, or college tuition that lands inside the term. Surrender charges do not care about your plans.
- Skip it if the MYGA rate is not meaningfully above the CD and Treasury rates you can actually get. A one-point rate advantage over five years barely repays the loss of liquidity.
Five Things to Check Before You Sign
- Carrier rating: confirm A+ or better from AM Best and check your state's guaranty association limit against the balance you are placing.
- Surrender schedule: get the year-by-year percentages in writing, plus whether a market value adjustment applies on top of the charge.
- Free withdrawal terms: most contracts allow 10% of premium per year without charge; some allow 10% of the accumulated value, and a few allow penalty-free access after a qualifying health event.
- Tax facts: confirm the money is non-qualified or an IRA (the deferral is meaningless inside an IRA, where it is already tax-deferred), and note that a 1035 exchange into a new MYGA continues the deferral.
- Beneficiary designation: name a person, not your estate, and revisit it after any life change - the probate-free transfer is one of the product's real advantages.
Video: MYGA vs CD, Side by Side
Stan the Annuity Man runs the same comparison from the sales side of the table, including how carriers price these contracts against bank deposits:
Frequently Asked Questions
Is a MYGA safer than a CD?
Not in the strict sense. A CD is insured by the federal government up to $250,000 per depositor per bank, while a MYGA depends on the carrier's reserves and your state guaranty association, which commonly covers $250,000 of present value. Both are low-risk, but the CD backstop is stronger and simpler. Where a MYGA wins is rate and tax treatment, not absolute safety.
What happens if I need the money before the term ends?
You can usually withdraw 10% of the premium each contract year without a charge. Anything above that triggers the surrender schedule - 7% in year one and two on a typical five-year contract - plus any market value adjustment, plus ordinary income tax on the gain. Our comparison shows the annuity sitting about $8,700 behind a CD if surrendered in year one.
Do I pay tax on MYGA interest every year?
No. Interest inside a non-qualified MYGA grows tax-deferred and is taxed as ordinary income only when you withdraw it. That is the entire tax advantage over a CD, which reports interest on a 1099-INT every year. Inside an IRA the advantage disappears because the account is already tax-deferred.
Is the 10% penalty based on the whole account or just the gain?
Just the gain, and only when the owner is under 59½ and the contract is non-qualified. Withdrawing $50,000 from a $300,000 contract with $60,000 of gain does not trigger a $5,000 penalty on the full withdrawal; it triggers 10% of the gain portion that comes out, on a last-in-first-out basis. Still enough to erase several years of deferral benefit.
Can I move a MYGA to another annuity without paying tax?
Yes, through a 1035 exchange, which transfers the contract directly to a new carrier and continues the deferral. The gain is not taxed at the exchange, but the new contract starts a new surrender period, so a serial exchanger can stay locked up indefinitely. Exchange only when the rate improvement is large enough to justify the new schedule.
Does a MYGA go through probate?
Not if you name a beneficiary. Annuity proceeds pass by contract to the named person, outside the will and outside probate. The gain is still taxable to the beneficiary as income in respect of a decedent, and there is no step-up in basis on the deferred interest.
Why do MYGAs pay more than CDs right now?
Insurance carriers invest premiums in longer-duration corporate and structured bonds and pass along part of that yield, while banks fund themselves partly with deposits they can reprice and hold more short-duration assets. When the corporate curve sits above the deposit curve - as it has through 2026 - the annuity spread widens. The spread is a market condition, not a permanent feature, which is why the rate is worth locking only when it is genuinely wide.
Related Resources
- Annuity surrender charge calculator - price the exit cost on a contract you already own.
- Annuity vs life insurance calculator - the same premium compared as income, legacy, and balance.
- Indexed annuity income rider calculator - what a guaranteed lifetime withdrawal benefit really costs.
- Life insurance vs a CD - why a life policy is not a deposit and a deposit is not protection.
- Life insurance vs savings account calculator - the long-run comparison of taxable savings and coverage.
- Pension maximization calculator - using life insurance to protect a survivor's pension income.
- Estate liquidity calculator - probate-free transfer and the cash an estate actually needs.
- IRS Publication 575 - Pension and Annuity Income, the authority on how annuity payments are taxed.
- FDIC deposit insurance - coverage limits and how they apply per depositor and per bank.
- SEC Investor.gov annuities guide - the regulator's plain-language explanation of annuity types.
- Federal Reserve H.15 - the Treasury yield series behind the rate assumptions here.
- NAIC consumer resources - state guaranty association coverage and annuity buyer protections.
Next Step: Price the Protection Side Too
A guaranteed rate solves one problem - keeping a lump sum safe from market losses and tax drag. It does not replace the coverage that keeps a household solvent if an earner dies. If you are repositioning savings and reviewing protection at the same time, run the numbers on both before you commit: a term policy that costs a fraction of the interest on this deposit can fund an obligation an annuity never touches.
Compare free life insurance and annuity quotes from multiple carriers and see the actual rates for your age and health class, side by side with the guaranteed-annuity quotes you have been offered.
Annuity owners face the same per-life ceiling as life policyholders, which is why the guaranty coverage checker belongs next to any MYGA comparison.
