Annuities
Fixed-rate annuities (MYGAs): a set rate for a set number of years
A multi-year guaranteed annuity, or MYGA, pays a fixed interest rate for a term you choose, usually between 2 and 10 years. You know the rate on day one and it doesn't change, whatever the markets or interest rates do.
How a MYGA works
You make a single deposit and choose a term. The insurer guarantees the rate for that term, and interest compounds tax-deferred until you take it out. Most contracts let you withdraw either the interest earned or about 10% a year without a charge. Taking out more during the term triggers a surrender charge, and some contracts also apply a market value adjustment that can raise or lower what you receive.
I don't post rates on this site because they change often. Book a review or call me for current rates in your state.
MYGA or CD?
| Bank CD | MYGA | |
|---|---|---|
| Who backs it | The bank, plus FDIC insurance up to $250,000 per depositor, per bank, per ownership category | The insurance company, plus your state's guaranty association up to limits that vary by state |
| Interest taxed | Each year, even if you leave it in | Only when you withdraw it (outside an IRA) |
| Typical terms | A few months to 5 years | 2 to 10 years |
| Early access | Penalty, usually several months of interest | Free withdrawals of interest or about 10% a year; surrender charge above that |
| Before age 59½ | No IRS penalty | 10% IRS penalty on taxable gains, with some exceptions |
A CD often makes more sense for short-term money or if you're under 59½ and may need it. A MYGA can make more sense for money you've set aside for retirement, especially if you'd rather not pay tax on the interest every year.
When the term ends
At the end of the term, you have a window, often 30 days, to decide. You can:
- Renew with the same insurer at its current rate.
- Move the money to another annuity through a 1035 exchange, which keeps the tax deferral.
- Withdraw it, paying ordinary income tax on the interest.
- Turn it into a stream of income.
If you do nothing, many contracts renew automatically for another term, so mark the date. I track my clients' term dates and reach out before the window opens.