A multi-year guaranteed annuity, or MYGA, is a contract with an insurance company that pays a set interest rate for a fixed term, commonly three to ten years. It works much like a CD, but the interest grows tax-deferred. The rate is subject to the claims-paying ability of the issuing insurance company. Withdrawals above the free amount, or before age 59 and a half, can trigger surrender charges and taxes.
Is this a fit for you?
Who This Is For
- You want CD-like certainty but a higher rate for money you will not touch for several years
- You have non-qualified savings and want the interest to compound tax-deferred until you withdraw it
- You have a defined time horizon that matches a 3, 5, or 7-year term
- You want principal protected from market movement with a rate locked at purchase
- You are building a laddered set of maturities for predictable, staged access
Who This Is Not For
- You may need the money before the term ends: surrender charges and a possible tax penalty apply
- You want growth tied to the market: a MYGA pays only its fixed rate
- You are already in a low tax bracket, where tax deferral adds little value
- You are under 59 and a half and might need access: withdrawals of gains can face a 10% IRS penalty
- You want FDIC backing: a MYGA is guaranteed by the carrier, not the federal government
How do the options compare?
| Feature | MYGA | Bank CD | Treasury Note |
|---|---|---|---|
| Who backs it | Issuing insurer (claims-paying ability) | FDIC, up to limits | U.S. government |
| Tax on interest | Deferred until withdrawn | Taxed each year | Taxed each year (federal) |
| Rate | Fixed for the full term | Fixed for the term | Fixed to maturity |
| Early-access cost | Surrender charge + possible 10% penalty | Interest forfeiture | Sold at market price |
| Typical term | 3 to 10 years | 3 months to 5 years | 2 to 10 years |
What are the risks, costs, and alternatives?
The rate is guaranteed only for the term, then renews
When the guarantee period ends, the contract typically enters a renewal rate that can be lower. Decide in advance whether you will withdraw, exchange to a new contract by a 1035 exchange, or annuitize. Do not let it roll silently.
Surrender charges apply to early withdrawals
Most MYGAs allow a penalty-free withdrawal of up to 10% per year. Beyond that, a declining surrender charge applies during the term. Match the term to money you are confident you can leave untouched.
The guarantee depends on the carrier
A MYGA is not FDIC insured. Its guarantee is subject to the claims-paying ability of the issuing insurance company, so the carrier's financial strength rating matters. State guaranty associations provide limited backstops that vary by state. That coverage is not a government guarantee and should not be relied upon in deciding whether to buy or which insurer to choose.
A fixed rate carries inflation risk
Locking a rate for several years gives certainty but no inflation adjustment. In a rising-price environment, the real value of a fixed payout erodes. This is a reason to ladder terms rather than commit everything at once.
What does this look like in practice?
The Whitcomb Family: A Ladder for Money They Do Not Need Yet
Illustrative example: not an actual client.
Frances and Everett Whitcomb, both 61, have $300,000 in a taxable savings account earmarked for the first years of retirement. They will not need it until Everett stops working at 66. They dislike watching that interest get taxed every year while it sits in cash.
They split the money across three fixed-rate annuities: a 3-year, a 5-year, and a 7-year term. Each locks a rate at purchase and lets the interest compound tax-deferred. As each contract matures, they decide whether to spend it, exchange it into a new contract, or convert it into lifetime income.
The ladder gives them staged access, defers the tax until they actually withdraw, and removes market risk from money they cannot afford to see fall right before they need it.
Illustrative scenario for educational purposes. Rates, terms, and surrender schedules vary by carrier and product. Guarantees are subject to the claims-paying ability of the issuing insurer.
Common Questions
How is a MYGA different from a bank CD?
Both pay a fixed rate for a set term, but a MYGA's interest grows tax-deferred until you withdraw it, while CD interest is taxed each year. A CD is FDIC insured up to limits; a MYGA is not, and its rate is subject to the claims-paying ability of the issuing insurance company. MYGA terms commonly run three to ten years.
What happens to my MYGA when the term ends?
When the guarantee period ends, the contract typically enters a renewal rate that can be lower than your original rate. You generally decide in advance whether to withdraw, move to a new contract through a 1035 exchange, or annuitize. Any renewal rate is subject to the claims-paying ability of the issuing insurance company. It is best not to let it roll silently.
Can I take money out of a MYGA before the term is up?
Most MYGAs allow a penalty-free withdrawal of up to about 10% per year. Beyond that, a declining surrender charge applies during the term, which reduces what you receive. Gains withdrawn before age 59 and a half can also face a 10% IRS penalty. Match the term to money you can leave untouched.
Is a MYGA safe if it is not FDIC insured?
A MYGA is not FDIC insured; its guarantee is subject to the claims-paying ability of the issuing insurance company, so the carrier's financial strength rating matters. State guaranty associations provide limited backstops that vary by state, but that coverage is not a government guarantee and should not be relied upon in choosing an insurer.
Related Questions
Comparing Fixed-Rate Annuities?
We compare MYGA rates and terms across carriers, weigh them against CDs and Treasuries for your tax situation, and build a maturity ladder that matches when you will actually need the money.
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Living Prepared, LLC is an affiliate of Whitwell & Co., LLC, an SEC-registered investment advisory firm. Insurance and annuity products are offered through licensed insurance professionals. See our Disclosures.