A fixed annuity pays a stated interest rate. A MYGA locks that rate for the whole term. This page covers the terms that decide what you actually earn, what you can take out along the way, and what happens when the term ends.
Fixed annuities are the simplest product we sell and the one most people compare to a bank CD. You deposit a premium, the carrier credits a guaranteed rate, interest compounds tax-deferred, and at the end of the term you take the money, renew or move it.
The questions that come up are nearly all about the rate: what it covers, when it can change, what the bonus really adds, and what the money yields if you leave early. This page answers them in that order.
Usually the wrong answer when
You may need the full amount before the term ends, you are in a 0% or very low tax bracket where tax deferral adds little, or you want growth beyond a fixed rate. A short Treasury ladder or a high-yield savings account is often the better answer for money with a horizon under two years.
Six product shapes sell under the “fixed annuity” label. The differences are in how long the rate is guaranteed and what you give up for it.
What is a fixed annuity?
DefinitionA fixed annuity is a contract in which the carrier credits a declared interest rate to your account value and guarantees your principal, with no link to any market index.
The carrier invests your premium in its General account, mostly investment-grade bonds, and pays you a rate out of what it earns. The rate is guaranteed for a stated period: one year on a traditional fixed annuity, the full term on a MYGA. Interest compounds tax-deferred and the Surrender charge schedule runs for the term.
Every fixed annuity carries a Minimum guaranteed rate below which renewals cannot fall and a state-mandated Guaranteed minimum surrender value.
Illustrative
$100,000 in a five-year fixed annuity at 5.00%, compounded annually, grows to $127,628 at the end of year five. None of that depends on markets, and none of it is taxed until withdrawn.
Watch for
“Fixed annuity” and “fixed index annuity” are different products. A fixed annuity pays a stated rate; a Fixed index annuity pays interest from an index formula with a floor. Illustrations and sales talk mix the words up constantly.
Related: MYGA · Traditional declared-rate fixed annuity · Guaranteed rate · Fixed index annuity · Annuity vs CD
What is a MYGA and how is it different from a regular fixed annuity?
DefinitionA multi-year guaranteed annuity (MYGA) is a fixed annuity whose interest rate is locked for the entire guarantee period, typically two to ten years, so the yield is known on the day you buy.
Pick a term, lock a rate, and the carrier credits that rate every year until the term ends. The Surrender charge schedule almost always matches the Guarantee period, so the day the rate guarantee expires is the day you can leave free. Most MYGAs allow some interest or free withdrawals along the way.
At the end of the term you get a Renewal window to take the money, roll it to a new contract, or let it renew at the carrier’s new rate.
Illustrative
A 5-year MYGA at 5.25% on $200,000: year-one interest is $10,500, year-five account value is about $258,300. The rate cannot change during those five years. A traditional fixed annuity might start at 5.25% and renew at 3.50% in year two.
Watch for
The rate is locked but the money is too. A seven-year MYGA at a slightly higher rate than a five-year is a seven-year commitment, and most buyers underestimate how long seven years is. See The liquidity trade-off.
Related: Fixed annuity · Guarantee period · Yield to surrender · MYGA ladder · MYGA vs CD
What does “declared rate” mean on a fixed annuity?
DefinitionA traditional declared-rate fixed annuity guarantees its rate for one year at a time; each anniversary the carrier declares a new rate for the next year, subject to the contract minimum.
The first-year rate is often attractive, sometimes boosted by a First-year bonus. After that the carrier sets a Renewal rate each year based on its portfolio and competitive needs. The Surrender charge schedule still runs five to ten years regardless of what the rate does.
Watch for
This design gives the carrier the pricing power. A strong first-year rate followed by weak renewals, with a surrender charge preventing you from leaving, is the classic complaint. Ask for the carrier’s Rate history on in-force contracts before buying one.
Related: Fixed annuity · Renewal rate · First-year bonus · Rate history · MYGA
Is a bonus fixed annuity really giving me free money?
DefinitionA bonus fixed annuity adds either a one-time credit to the account value at issue, often 1% to 3% of premium, or an extra first-year interest rate, in exchange for a longer surrender period, a lower ongoing rate, or both.
Carriers fund the bonus by holding your money longer or paying less later. On a declared-rate contract, the bonus usually applies only to the first-year rate. On some contracts the bonus vests over several years and is clawed back if you leave early.
Illustrative
Contract A: 3% bonus, then 4.00% for five years. Contract B: no bonus, 4.75% for five years. On $100,000, A ends at about $125,300 and B at about $126,100. The bonus loses despite the bigger headline.
Watch for
Run the full-term math, not the first-year math. A bonus can make sense when it offsets a surrender charge on a contract you are leaving, but only if the renewal rates hold up. See Base rate vs bonus rate.
Related: Base rate vs bonus rate · First-year bonus · Premium bonus · Bonus vesting · Effective yield
Can I get a MYGA where I can always get my premium back?
DefinitionA return-of-premium MYGA guarantees that a full surrender will return at least the original premium, less prior withdrawals, even inside the surrender period.
The surrender charge and any Market value adjustment still apply to interest earned, but never cut into principal. The carrier pays for that promise with a lower rate, often 0.25% to 0.50% below the same term without it.
Watch for
Return of premium is not return of interest. Leaving early still costs most or all of what you have earned. It is worth paying for only if an early exit is a real possibility; if it is, a shorter term may be the better fix.
Related: MYGA · Surrender charge · Market value adjustment · Guaranteed minimum surrender value
What is a CD-type annuity?
DefinitionA CD-type annuity is a MYGA whose surrender charge period exactly matches its rate guarantee period, so there is never a year with a surrender charge and no guaranteed rate.
The term is informal; carriers do not use it on contracts. It distinguishes a clean MYGA (five-year rate, five-year surrender charge) from a contract that guarantees a rate for three years but charges for surrender over seven.
Watch for
Always compare the guarantee period to the surrender charge schedule. When they do not match, you are exposed to whatever renewal rate the carrier chooses for the gap years, with no free exit. See Renewal rate.
Related: MYGA · Guarantee period · Surrender charge schedule · Renewal rate
Twelve terms that decide what you earn. The headline rate is the least important of them.
Is the rate on the quote guaranteed?
DefinitionThe guaranteed rate is the annual interest rate the contract promises to credit for the stated guarantee period; it cannot be lowered during that period for any reason.
On a MYGA the guaranteed rate covers the full term. On a declared-rate contract it covers one year. The rate is stated as an annual effective rate on most contracts, meaning it already reflects Annual compounding. Confirm whether a quoted rate includes any First-year bonus, which would make the base rate lower.
Watch for
A rate is guaranteed only once the contract is issued. Carriers change new-business rates often, and a rate quoted today may not be available when your transfer arrives. See Rate lock.
Related: Guarantee period · Rate lock · Base rate vs bonus rate · Effective yield · Minimum guaranteed rate
How long is my rate locked for?
DefinitionThe guarantee period is the number of years the guaranteed rate applies; on a MYGA it normally equals the term and the surrender charge period.
Common MYGA terms are 2, 3, 5, 7 and 10 years. When the period ends, the contract enters a Renewal window and either renews at a new rate or pays out. On contracts where the guarantee period is shorter than the surrender period, the years in between are priced by the carrier at renewal.
Watch for
Match the guarantee period to when you will want the money, not to whichever term has the best rate this week. Rates by term move around; your timeline should not.
Related: Guaranteed rate · Surrender period · Renewal window · MYGA ladder
What is the difference between the base rate and the bonus rate?
DefinitionThe base rate is the contract’s underlying guaranteed rate; the bonus rate is the base rate plus a one-time first-year addition that disappears after year one.
A quote showing “5.50% first year, 4.50% thereafter” has a 4.50% base and a 1.00% first-year bonus. The number that drives your multi-year return is the base. Averaging the two over the term gives a fair comparison to a flat-rate MYGA.
Illustrative
Five-year contract, 5.50% year one then 4.50%: average about 4.70%. A flat 4.85% MYGA beats it over the same five years.
Watch for
Some marketing shows the bonus rate in large type and the base rate in a footnote. Ask for both in writing and run the average.
Related: First-year bonus · Bonus fixed annuity · Effective yield · Guaranteed rate
What is a first-year interest bonus?
DefinitionA first-year bonus is extra interest credited only in the first contract year, on top of the base rate, used to raise the headline number on a quote.
Unlike a Premium bonus that adds to the account value at issue, a first-year interest bonus is simply a higher crediting rate for twelve months. It is common on declared-rate contracts and rare on true MYGAs.
Watch for
A bonus tied to a short guarantee is a sign the carrier expects to lower the rate. A 2% first-year bonus with a 7-year surrender charge is a bet on the carrier’s goodwill for six years.
Related: Base rate vs bonus rate · Bonus fixed annuity · Premium bonus · Renewal rate
What will I actually earn per year over the whole term?
DefinitionEffective yield is the single annual rate that, compounded over the term, produces the same ending value as the contract’s actual mix of rates and bonuses.
For a flat-rate MYGA with annual compounding, effective yield equals the stated rate. For a contract with a bonus year, a declining rate or a premium bonus, compute the ending value, then back out the single rate that gets there. We show this number on every quote so bonus and non-bonus contracts compare on one line.
Illustrative
$100,000, 3% premium bonus, 4.00% for five years: ending value $125,300, effective yield 4.62%. The same money at a flat 4.75% ends at $126,100.
Watch for
Effective yield assumes you stay the full term. Leave early and the right number is Yield to surrender.
Related: Yield to surrender · Base rate vs bonus rate · Annual compounding · Guaranteed rate
What do I earn if I pull out in year three?
DefinitionYield to surrender is the annual return you would realize if you fully surrendered at a given point, after the surrender charge and any market value adjustment.
Take the surrender value at the end of a given year, compare it to the premium, and compute the annualized return. In early years it is often negative: a 5% rate with an 8% year-one surrender charge yields about minus 3.4% if you exit at month twelve.
Illustrative
$100,000 at 5.00%, surrender charges 8/7/6/5/4. End of year 3: account value $115,763, surrender value after 6% charge about $108,800, yield to surrender about 2.85% a year.
Watch for
If there is any realistic chance you exit early, pick the contract with the best yield to surrender at that point, not the best headline rate. The two can be different contracts.
Related: Effective yield · Surrender charge schedule · Surrender value · Market value adjustment
Why does the rate change based on how much I deposit?
DefinitionPremium bands are deposit size tiers, such as under $100,000 and $100,000 and up, that carry different guaranteed rates on the same contract.
Larger deposits cost the carrier less to administer per dollar, so most contracts pay a higher rate above a threshold. Common break points are $50,000, $100,000 and $250,000, with the high band paying 0.10% to 0.30% more.
Watch for
If you are just under a band, consider whether consolidating two accounts into one contract is worth the extra rate. Do not stretch into a band with money you need elsewhere.
Related: Guaranteed rate · Premium · Splitting premium across carriers
Can I lock today’s rate while my transfer goes through?
DefinitionA rate lock is a carrier’s promise to issue the contract at the rate in effect on the application date, provided the premium arrives within a set window, usually 30 to 60 days.
Rate locks matter because transfers from another institution take weeks. Without a lock you receive whatever rate applies the day the money lands. Each carrier sets its own rules: some lock automatically, some require the application to be signed and received, some give the better of the two rates.
Related: Rate hold during transfer · Transfer timelines · Guaranteed rate · Funding
What happens to my rate if my transfer takes longer than expected?
DefinitionA rate hold is the specific period, set by the carrier, during which a locked rate stays available while transfer paperwork and funds are in transit.
Typical holds run 30, 45 or 60 days from the application signature or from the carrier’s receipt of paperwork. Some carriers extend the hold once on request. If the hold lapses, the contract issues at the current new-business rate, which may be higher or lower.
Watch for
Rising-rate environments make lapsed holds harmless; falling ones make them costly. Submit transfer forms the same day as the application and follow up with the sending institution weekly.
Related: Rate lock · Transfer timelines · Funding · Trustee-to-trustee transfer
What rate will I get after the guarantee ends?
DefinitionThe renewal rate is the new rate a carrier declares when a guarantee period ends, applied to the next period if you keep the contract.
Carriers set renewal rates from their portfolio yield, competitive position and how much they want to keep the money. The rate must be at least the contract’s Minimum guaranteed rate. On a MYGA the renewal usually comes with a fresh guarantee period and often a fresh surrender schedule.
Watch for
Renewal rates on in-force contracts are frequently lower than new-business rates for the same carrier. That is why the Renewal window exists and why we review every maturing contract rather than letting it roll.
Related: Renewal window · Automatic renewal · Minimum guaranteed rate · Rate history
How low can my rate go after the guarantee period?
DefinitionThe minimum guaranteed rate is the contractual floor below which the carrier can never set a renewal rate, typically 1% to 3%, stated in the contract at issue.
Each contract states its own floor. Rates of 1% to 3% have been common, and some newer contracts set it lower, down toward the state nonforfeiture minimum. The floor matters only if you renew into a weak rate rather than leaving; it is the worst case, not the expectation.
Watch for
Do not confuse this with the Nonforfeiture rate, which governs the minimum surrender value, not the crediting rate.
Related: Renewal rate · Nonforfeiture rate · Guaranteed rate · Traditional declared-rate fixed annuity
Where does the rate on a MYGA come from?
DefinitionCarriers set fixed annuity rates from the yield on the bonds they can buy with your premium, minus their expenses, capital costs and profit target, adjusted for how badly they want new business.
A carrier selling a five-year MYGA buys roughly five-year investment-grade corporate bonds and other credit. If those yield 6%, it might offer 5% after costs. That is why MYGA rates track corporate bond yields more closely than Treasury yields, and why they usually sit above CD rates.
Carriers that need growth (new entrants, those backed by asset managers) often pay more. See Private equity-owned carriers for what that can mean.
Watch for
A rate far above the market is a question, not a gift. Ask what the carrier is investing in and look at its Risk-based capital ratio before chasing the top line.
Related: General account · Investment portfolio · Private equity-owned carriers · MYGA vs Treasury
How interest is credited and the ways you can take it without triggering a surrender charge.
Does my interest compound?
DefinitionAnnual compounding means each year’s interest is added to the account value and earns interest itself in later years; most fixed annuities credit this way.
Some contracts credit daily and compound annually, which produces the same annual result. The stated rate on most quotes is an annual effective yield, so compounding is already reflected. Over five years at 5%, compounding adds about $2,600 per $100,000 versus simple interest.
Related: Compounding vs taking interest · Interest crediting date · Effective yield
When does the interest actually show up?
DefinitionThe interest crediting date is when earned interest is posted to the account value, usually daily, monthly or on the contract anniversary, as the contract specifies.
Daily crediting means the account value grows a little every day and a mid-year surrender gets interest to date. Anniversary-only crediting means a surrender eleven months in may forfeit most of the year’s interest. The contract language, not the statement, tells you which.
Watch for
Before any mid-year withdrawal or surrender, confirm whether interest to date is paid. On anniversary-crediting contracts, wait for the anniversary.
Related: Contract anniversary · Annual compounding · Yield to surrender
Can I take just the interest and leave the principal alone?
DefinitionAn interest-only withdrawal provision lets you withdraw the interest credited, monthly or annually, without surrender charge, leaving the premium intact.
Many MYGAs allow interest withdrawals from day one or after the first 30 days, sometimes in addition to the standard Free withdrawal provision, sometimes instead of it. The interest is taxable in the year received on a non-qualified contract, as gains come out first.
Illustrative
$200,000 at 5.00% with monthly interest-only withdrawals: about $833 a month, principal stays at $200,000, account value never grows. At the end of a five-year term you still have $200,000.
Watch for
Interest-only means no compounding. Over a long term that is a large difference. If you do not need the income, let it compound and take a larger free withdrawal later if needed.
Related: Monthly interest payout · Systematic withdrawals · Free withdrawal provision · Compounding vs taking interest
Can I set up automatic monthly payments from the annuity?
DefinitionSystematic withdrawals are scheduled, recurring withdrawals the carrier sends automatically, in a fixed dollar amount or percentage, within the contract’s free withdrawal limits.
You choose the amount and frequency; the carrier deposits it to your bank. Amounts within the free withdrawal allowance are charge-free; anything above it triggers surrender charges on the excess. RMDs are commonly handled this way. See RMD-friendly free withdrawals.
Watch for
A systematic withdrawal larger than the free amount runs quietly into surrender charges every month. Set the amount against the contract’s limit, not against your budget alone.
Related: Interest-only withdrawals · Free withdrawal provision · RMD-friendly free withdrawals · Requesting a withdrawal
Can I get my interest paid monthly like a pension?
DefinitionA monthly interest payout sends the contract’s earned interest to you each month, giving a fixed annuity a paycheck feel while leaving principal untouched.
It is the monthly form of Interest-only withdrawals. The carrier calculates the month’s interest and sends it by direct deposit. Because the premium stays whole, the payment stays level for the guarantee period and the full principal is there at maturity.
Watch for
Not every MYGA offers monthly interest. If a steady check is the goal, filter for it up front rather than discovering it is annual-only after issue.
Related: Interest-only withdrawals · Systematic withdrawals · SPIA
Should I take the interest or let it ride?
DefinitionCompounding leaves interest in the contract to earn more interest and defers tax; taking interest produces current income, stops growth on what is withdrawn, and is taxed as received.
If you need the income, take it. If you do not, compounding wins twice: the interest earns interest, and the tax bill waits. Over a 10-year MYGA at 5%, compounding turns $100,000 into about $162,900; taking interest each year leaves $100,000 plus $50,000 of taxed income.
Watch for
Some buyers take interest “to avoid a big tax bill later.” On a non-qualified contract the deferred interest is taxed at withdrawal either way; what changes is when and at what bracket. Run it with your tax preparer.
Related: Annual compounding · Interest-only withdrawals · Tax deferral · Gains-first taxation
What the carrier does when your guarantee period ends, and the short window you have to decide.
How long do I have to decide at the end of my term?
DefinitionThe renewal window is the period, usually 30 days after the guarantee period ends, during which you can surrender or transfer without charge before the contract renews.
The carrier sends a notice shortly before maturity listing the Renewal rate and your choices. If you do nothing, most contracts renew automatically. A transfer to a new MYGA at another carrier via 1035 exchange must be started early enough to complete inside the window.
Watch for
Thirty days is not long when a transfer takes three weeks. Start the paperwork for any move before the window opens. We calendar every client’s maturity date for this reason.
Related: Automatic renewal · Options at maturity · Rolling into a new MYGA · Renewal rate
What happens if I miss the deadline?
DefinitionAutomatic renewal is the default on most MYGAs: if you give no instruction during the renewal window, the contract renews for a new term at the carrier’s declared rate, often with a new surrender schedule.
Some contracts renew for the same term length, some for one year at a time, and some drop to a declared-rate basis with no surrender charge. The contract states which. Renewed contracts may carry a fresh surrender schedule, locking the money again.
Watch for
A fresh seven-year surrender charge at a 3% renewal rate is the expensive version of missing a 30-day window. Read the maturity notice the day it arrives.
Related: Renewal window · Renewal rate · Options at maturity · Surrender charge schedule
What are my choices when the MYGA matures?
DefinitionAt maturity you can take the money as a lump sum, renew with the same carrier, exchange to a new contract, annuitize, or on some contracts leave it in a no-charge holding rate.
For IRA money, the move is a Trustee-to-trustee transfer rather than a 1035, with the same no-tax result.
Watch for
A lump sum on a large non-qualified gain can push you into a higher bracket in one year. Compare that against the Exclusion ratio treatment of annuitizing or simply exchanging and deferring longer.
Related: Renewal window · Rolling into a new MYGA · 1035 exchange · Annuitization · Maturity date
How do I move my maturing MYGA to a better rate without paying tax?
DefinitionRolling into a new MYGA means moving the maturing contract’s value to a new contract, at the same or another carrier, through a tax-free 1035 exchange or IRA transfer.
Apply for the new contract a few weeks before maturity, with transfer paperwork instructing the old carrier to send the funds during the renewal window. The gain carries over untaxed and the new contract starts its own term and surrender schedule. See 1035 exchange and Basis carryover.
Watch for
Each roll restarts a surrender period. Rolling a 70-year-old’s MYGA into a 10-year contract because the rate is highest may not match how long the money can stay. Shorter terms, or a MYGA ladder, often fit better.
Related: 1035 exchange · Options at maturity · MYGA ladder · Basis carryover · Rate lock
How we use fixed annuities in practice, and how they compare to the alternatives people ask about most.
What is a MYGA ladder and why would I build one?
DefinitionA MYGA ladder splits a sum across contracts with staggered terms, such as 2, 3, 5 and 7 years, so money matures regularly and each maturity can be reinvested at current rates.
Laddering trades a little yield for liquidity and rate diversification. Each rung matures on its own schedule, giving you a free exit every year or two and a chance to reinvest if rates have risen. It also naturally spreads premium across carriers.
Illustrative
$400,000 in four $100,000 rungs: 2-year at 4.6%, 3-year at 4.9%, 5-year at 5.2%, 7-year at 5.3%. Blended rate about 5.0%, with $100,000 coming free in years 2, 3, 5 and 7.
Watch for
A ladder needs attention at every maturity. If you will not re-shop each rung, a single contract matched to your real horizon is simpler.
Related: MYGA · Guarantee period · Splitting premium across carriers · SPIA ladder · Options at maturity
Should I put everything with one carrier?
DefinitionSplitting premium across carriers means dividing a large deposit among two or more insurers to limit exposure to any one company’s financial strength.
Every guarantee in a fixed annuity depends on the issuing carrier. Dividing $500,000 among three strong carriers at similar rates costs little yield and removes the single-company question. It also lets you use Premium bands efficiently and mix terms in a MYGA ladder.
Watch for
Diversification is not a substitute for carrier selection. Three weak carriers are not safer than one strong one. See How MAS looks at carriers.
Related: Insurance carrier · Carrier strength and ratings · How MAS looks at carriers · MYGA ladder · Premium bands
MYGA or CD: which pays more after tax?
DefinitionA MYGA and a CD both guarantee a fixed rate for a fixed term; the MYGA usually pays more and defers tax, while the CD is FDIC-insured, taxed yearly and cheaper to exit early.
Use the calculator below to compare after-tax outcomes for your own bracket and term.
Watch for
If you may need the money before the term ends, the CD’s gentler exit cost can outweigh the MYGA’s higher rate. If you are under 59½ and may withdraw gains, the 10% penalty changes the math. See 10% additional tax before 59½.
Related: Annuity vs CD · Tax deferral · Surrender charge · 10% additional tax before 59½ · MYGA vs Treasury
Why not just buy Treasuries?
DefinitionA Treasury note is backed by the federal government, exempt from state tax and fully liquid; a MYGA usually pays a higher rate, defers all tax, but relies on the carrier and locks the money.
MYGA rates track corporate bond yields, so they typically sit above Treasuries of the same term. The Treasury’s state-tax exemption narrows the gap in high-tax states. The Treasury can be sold any day at market price; the MYGA pays a surrender charge to leave.
Illustrative
Five-year: Treasury 4.0%, MYGA 5.2%. For a buyer in a 24% federal and 5% state bracket, the Treasury’s after-tax yield is about 3.0% now; the MYGA defers tax and compounds at 5.2% until withdrawn.
Watch for
For money with an unknown horizon, the Treasury’s liquidity is worth a lot. For money you know will sit five years, the MYGA’s extra yield plus deferral usually wins. Do not buy the MYGA for the first kind of money.
Related: MYGA vs CD · MYGA vs bond fund · Annuity vs bond ladder · How carriers set fixed rates
Is a MYGA safer than my bond fund?
DefinitionA bond fund has no maturity date and can lose value when rates rise; a MYGA guarantees principal and a fixed rate, with no market pricing, in exchange for a surrender period.
A bond fund’s value floats daily with interest rates and credit spreads. A MYGA’s value only goes up, at the guaranteed rate. The fund offers daily liquidity and the chance to gain if rates fall; the MYGA offers certainty. Fund expenses come off the top every year; a MYGA has no explicit fee.
Watch for
The comparison breaks down for money that needs daily access. A MYGA is a replacement for the part of a bond allocation you can commit for a term, not for the whole thing.
Related: MYGA vs Treasury · Annuity vs bond ladder · Fixed annuity · The liquidity trade-off
Explainer: MYGA vs CD after tax
Illustrative. Enter your own rates and bracket. Assumes both are held to the end of the term, CD interest is taxed each year, and the MYGA’s gain is taxed once at the end at the same rate.
Ignores early-exit costs and the 10% federal penalty on MYGA gains withdrawn before 59½. Not tax advice.
My Annuity Store is a licensed insurance agency. This reference is general education, not a recommendation for any product or carrier, and it is not tax or legal advice. Call 855-277-8088 or email info@myannuitystore.com with questions.
