A MYGA, or multi-year guaranteed annuity, is a fixed annuity that pays a guaranteed interest rate for a set number of years, often 3, 5 or 7. Your principal is protected by the insurance company, your interest grows tax-deferred, and you know exactly what you will have when the term ends.
That is why people call a MYGA the CD’s tax-deferred cousin. This lesson covers how one works, how it stacks up against a bank CD, and the fine print that decides whether it fits you.
How does a MYGA work?
You give the insurer a lump sum, and the insurer credits a guaranteed rate for the full term. Say you put in $100,000 at a hypothetical 5% for five years. With no withdrawals, you would have about $127,628 at the end of year five, before taxes.
- The rate is locked for the whole term. A MYGA guarantees its rate for the entire surrender period, not just the first year.
- The term is set up front. Terms commonly run 3 to 10 years. Longer terms often pay more, but not always.
- Interest compounds tax-deferred. You owe no tax on the interest each year. Taxes are due only when you take money out.
- The market cannot touch it. Your balance does not rise or fall with stocks or bonds.
Some traditional fixed annuities work differently. They guarantee a rate for a shorter first period, then reset it each year, subject to a guaranteed minimum. A MYGA removes that guesswork for the full term.
What happens when the term ends?
- Take your money. You can withdraw your principal and interest with no surrender charge. Income tax is due on the gain.
- Renew. Many contracts roll into a new term at whatever rate the insurer offers then, sometimes with a new surrender period. Watch the short window you get to decide.
- Move it. A 1035 exchange lets you transfer the money to a different annuity without triggering tax.
MYGA vs CD: which pays more?
MYGAs often pay more than bank CDs of the same term. How big the gap is moves with interest rates, so compare current quotes side by side instead of trusting a rule of thumb. Our full comparison of annuities vs CDs goes deeper.
| Feature | MYGA | Bank CD |
|---|---|---|
| Who guarantees it | The insurance company, backed by its claims-paying ability | The bank, with FDIC insurance up to its limits |
| Backup if the issuer fails | State guaranty association, up to state limits | FDIC |
| Tax on interest | Deferred until you withdraw | Due each year, even if you leave it in |
| Early withdrawal | Surrender charge above any free withdrawal amount | Early withdrawal penalty set by the bank |
| Withdrawals before age 59½ | Taxable gains may owe an extra 10% IRS tax | No age penalty |
| Typical terms | 3 to 10 years | A few months to several years |
Tax deferral helps most when you will not need the money until after 59½. If you might need it sooner, a CD’s simpler rules can be worth a slightly lower rate.
Why do MYGA rates differ so much between insurers?
Rates for the same term can differ by a full percentage point or more from one insurer to the next. On $100,000 over five years, the gap between a hypothetical 4% and 5% is about $6,000 in interest. Rates also change often, sometimes weekly.
- The insurer’s appetite for new money. A company that wants to grow may price more aggressively for a while.
- Its investment portfolio. Insurers back MYGAs mostly with bonds, so their returns shape what they can pay. Our explainer on how annuity rates are set walks through it.
- Contract features. A longer surrender period or a market value adjustment can support a higher rate.
- Financial strength. A higher rate from a lower-rated insurer is a trade-off, not a free gift. Lesson 3 covers how to check that.
The practical takeaway is simple. Never judge a MYGA by one quote from one company. Compare several insurers for the same term before you commit.
What fine print should you check on a MYGA?
- Surrender schedule. Know the charge for each year and how much you can take out free. Many contracts allow 10% a year, while some allow only the interest.
- Market value adjustment. A market value adjustment can lower an early withdrawal if rates have risen since you bought. If rates have fallen, it can raise it.
- Renewal terms. Ask what minimum rate the contract guarantees after the first term, and whether a new surrender period starts.
- What backs the promise. The guarantee rests on the insurer, with state guaranty association coverage as a limited backstop if it fails.
- What is the guaranteed rate, and for exactly how long?
- What minimum rate does the contract guarantee after the first term?
- How long is the surrender period, and what does it cost to withdraw more than the free amount?
- What happens at the end of the term? Does the rate reset, and does a new surrender period begin?
- Is there a market value adjustment, and how could it change an early withdrawal?
Check your understanding
Answer these five questions to see what stuck from this lesson.
Lesson 4 quiz: MYGAs
5 questions. No sign-up, nothing saved to our servers.
Common questions
Can you lose money in a MYGA?
Not from market swings, since the rate and principal are guaranteed by the insurer. You can lose money if you withdraw more than the free amount during the surrender period, or if a market value adjustment works against you.
Is a MYGA FDIC insured?
No. A MYGA is backed by the insurance company’s claims-paying ability, with your state’s guaranty association as a limited backstop if the insurer fails.
Can you hold a MYGA inside an IRA?
Yes. Inside an IRA the annuity adds no extra tax deferral, because the IRA already provides it, so choose it for the rate and the guarantee.
A MYGA is the simplest of the four annuity types: one rate, one term, no market link. The next lesson covers fixed index annuities, which trade the fixed MYGA rate for index-linked growth with a 0% floor.