What is a MYGA?
A Multi-Year Guaranteed Annuity (MYGA) is an insurance contract that guarantees a fixed interest rate for a specific term—typically 3, 5, 7, or 10 years. Think of it as a CD alternative that often pays higher rates with tax-deferred growth.
How It Works in 90 Seconds
- 1. You invest a lump sum with an insurance company (typically $10,000+)
- 2. Your rate is locked in for the entire term (e.g., 5.45% for 5 years)
- 3. Interest compounds tax-deferred until you withdraw
- 4. At maturity, withdraw, renew, or transfer to another annuity
- 5. Early withdrawal fees apply if you take out more than your free amount
Key Benefits
🔒 Guaranteed Returns
Your rate is locked in for the entire term. No market risk, no surprises. You know exactly what you'll earn.
📈 Higher Than CDs
MYGAs typically pay 0.5-2% more than comparable CDs, putting more money in your pocket.
💰 Tax-Deferred Growth
Interest compounds without annual 1099s. You only pay taxes when you withdraw.
🛡️ State-Backed Safety
Protected by state guarantee associations (typically up to $250,000 per carrier).
How MYGAs Work
Understanding the lifecycle of a MYGA from purchase through maturity.
Purchase Phase
You select a MYGA based on rate, term, and carrier strength. You make a lump-sum deposit (minimum typically $10,000-$25,000). The insurance company issues your contract, and your guaranteed rate begins immediately.
Accumulation Phase
Your money grows at the guaranteed rate with daily compound interest. You can typically withdraw up to 10% annually penalty-free. Interest is tax-deferred—no annual 1099-INT forms. You receive annual statements showing your current value.
Maturity Options
When your term ends, you have several choices:
- Withdraw: Take your money without surrender charges
- Renew: Continue with the carrier at current rates
- 1035 Exchange: Transfer tax-free to another annuity
- Annuitize: Convert to guaranteed lifetime income
MYGA vs CD Comparison
Both MYGAs and CDs offer safe, guaranteed returns. Here's how they compare:
| Feature | MYGA | CD |
|---|---|---|
| Typical Rate (5-year) | 5.0-5.5% | 4.0-4.5% |
| Safety | Insurance carrier + state guarantees | FDIC insured (up to $250K) |
| Tax Treatment | Tax-deferred until withdrawal | Annual 1099-INT (taxed yearly) |
| Interest Compounding | Daily (tax-deferred) | Daily (taxed annually) |
| Early Withdrawal | Surrender charges (declining) | Penalty (3-12 months interest) |
| Free Withdrawal | Typically 10% annually | Usually not available |
| Minimum Investment | $10,000-$25,000 | Often $500-$1,000 |
| Best For | Tax deferral, higher rates | Lower minimums, FDIC coverage |
Real Example: $100K for 5 Years
MYGA Glossary
Common terms you'll encounter when comparing MYGAs.
Accumulation Value
The total value of your annuity including your initial premium plus all accumulated interest.
Free Withdrawal Amount
The percentage of your account value you can withdraw each year without surrender charges—typically 10% after the first year.
Guaranteed Rate
The fixed interest rate that's locked in for your entire MYGA term. This rate cannot change regardless of market conditions.
Market Value Adjustment (MVA)
A formula that adjusts your surrender value based on current interest rates if you withdraw early. Can be positive or negative.
Maturity Date
The end of your MYGA term when surrender charges drop to zero and you can withdraw funds without penalty.
Surrender Charge
A penalty fee for withdrawing more than your free amount before the term ends. These typically decline each year (e.g., 9% year 1, down to 0% at maturity).
1035 Exchange
A tax-free transfer from one annuity contract to another. Named after IRS code section 1035, this allows you to move money without triggering taxes.
State Guarantee Association
State-backed organizations that protect annuity owners if an insurance carrier fails. Coverage is typically $250,000 per carrier per state.
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