A market value adjustment (MVA) is a clause in some fixed annuity contracts that can increase or decrease your surrender value if you withdraw more than the free withdrawal amount before the surrender period ends. The adjustment is based on changes in interest rates between the time you purchased the annuity and the time you surrender it.
MVAs exist because insurance companies invest your premium in bonds and other fixed-income assets. If you cash out early, the insurer may need to sell those bonds at a loss or gain depending on where interest rates have moved. The MVA passes part of that market impact to you.
How Does a Market Value Adjustment Work?
When you buy a fixed annuity, the insurance company locks in a portfolio of bonds to back your guaranteed rate. If you surrender the contract early, two scenarios play out:
- Interest rates have risen since purchase: The insurer’s bonds are now worth less. The MVA works against you, reducing your surrender value. For example, if you bought a 5-year MYGA at 5.00% and rates have since climbed to 6.00%, surrendering early means the insurer sells bonds at a discount. Your MVA would be negative.
- Interest rates have fallen since purchase: The insurer’s bonds are now worth more. The MVA works in your favor, increasing your surrender value. If rates dropped from 5.00% to 4.00%, the insurer profits on the bond sale and passes some of that gain to you.
Think of it this way: the MVA aligns your early surrender outcome with what the insurer actually experiences in the bond market.
How Is the MVA Calculated?
The exact formula varies by carrier, but the most common approach uses U.S. Treasury yields as a reference rate. Here is the general formula:
MVA Factor = 1 – [(1 + I) / (1 + J)]N/12
Where:
- I = The reference interest rate on the date your premium was credited
- J = The reference interest rate on the date you surrender
- N = The number of full months remaining in the surrender period
The MVA factor is then multiplied by the amount of your accumulation value being surrendered (beyond any free withdrawal allowance).
A few important details:
- The reference rate is typically the U.S. Treasury Constant Maturity yield matching your surrender period duration
- Treasury yields are averaged using the 1st, 8th, 15th, and 22nd day of the preceding calendar month
- If the Treasury yield is discontinued, the insurer may substitute an alternative rate, subject to approval by the Interstate Insurance Product Regulation Commission (IIPRC)
When Does the MVA Apply?
The MVA only kicks in under specific circumstances:
- Early surrender during the surrender period – If you cash out the full contract before the surrender charges expire
- Excess withdrawals – If you withdraw more than the annual free withdrawal amount (typically 10% of your account value or accumulated interest)
The MVA does not apply to:
- Free withdrawals – Most annuities allow 10% per year or accumulated interest penalty-free. The MVA does not touch this amount.
- Death benefit payouts – If the annuitant passes away, beneficiaries typically receive the full accumulation value without MVA
- Annuitization – If you convert the contract to an income stream, the MVA generally does not apply
- After the surrender period ends – Once the surrender charges expire, the MVA no longer applies
MVA vs. Surrender Charges: What Is the Difference?
Surrender charges and MVAs are separate penalties that can both apply to an early withdrawal, but they work differently:
- Surrender charges are a fixed, declining percentage (for example, 8% in year 1, 7% in year 2, down to 0%). They are predictable and published in the contract.
- The MVA is variable and depends on interest rate movements. It can be positive (giving you more money) or negative (reducing your payout). You cannot predict it in advance.
In a worst-case scenario, both a surrender charge and a negative MVA could apply to the same withdrawal, significantly reducing your payout. This is why understanding both provisions is critical before purchasing any annuity with an MVA clause.
Which Annuities Have MVAs?
Not all fixed annuities include an MVA. Here is a general breakdown:
- MYGAs (Multi-Year Guaranteed Annuities): Some MYGAs include MVAs, but many do not. Carriers that include MVAs often offer slightly higher guaranteed rates as compensation. Check the best fixed annuity rates and compare products with and without MVAs.
- Fixed Index Annuities (FIAs): MVAs are more common in fixed index annuities because of their longer surrender periods and more complex investment backing.
- Immediate annuities and deferred income annuities: These typically do not have MVAs because they are designed for income, not accumulation.
Should You Avoid Annuities with MVAs?
Not necessarily. An MVA is not inherently bad. Consider these factors:
- Higher rates: Carriers often offer higher guaranteed rates on MVA products. If you plan to hold the annuity for the full term, the MVA never applies and you benefit from the higher rate.
- Interest rate outlook: If rates are expected to fall during your contract term, the MVA could actually work in your favor if you needed to surrender early.
- Your liquidity needs: If there is any chance you will need the full balance before the surrender period ends, a non-MVA product may be a safer choice.
The key question is: how confident are you that you will hold the annuity for the full term? If the answer is “very confident,” an MVA product with a higher rate may be the better deal.
How to Protect Yourself
- Read the contract MVA provision carefully before purchasing. Ask your agent to explain the reference rate and calculation method.
- Use the free withdrawal provision for any liquidity needs. Stay within the penalty-free limit each year.
- Consider laddering multiple shorter-term MYGAs instead of one long-term contract. This reduces your exposure to any single MVA. Learn more about annuity laddering strategies.
- Compare products with and without MVAs at current fixed annuity rates. Sometimes the rate difference is minimal, making a non-MVA product the smarter choice.
- Know the guaranty association limits in your state as an additional layer of protection.
Frequently Asked Questions
Can the MVA make my annuity worth more than the accumulation value?
Yes. If interest rates have dropped significantly since you purchased, a positive MVA can increase your surrender value above the base accumulation value. However, most contracts cap the positive MVA so it cannot exceed a certain percentage.
Does the MVA apply if I die?
In most contracts, the death benefit is paid without any MVA deduction. Your beneficiaries receive the full accumulation value. Always verify this in the specific contract language.
Is the MVA the same as a surrender charge?
No. Surrender charges are a fixed, predictable penalty that declines over time. The MVA is a variable adjustment based on interest rate changes. Both can apply to the same withdrawal, and they are calculated independently.
Do all MYGAs have MVAs?
No. Many MYGAs do not include MVA provisions. When comparing rates, check whether the product includes an MVA. Products with MVAs may offer slightly higher guaranteed rates.
How do I know if my annuity has an MVA?
The MVA provision is disclosed in the annuity contract and product brochure. If you are shopping for annuities, ask your agent or request a quote and specify that you want to compare MVA and non-MVA options.
