What is a Multi-Year Guaranteed Annuity (MYGA)?

A MYGA is a type of fixed annuity and stands for Multi-Year Guaranteed Annuity. They are essentially a CD that is issued by an insurance company instead of a bank. MYGAs pay a specified rate for a set number of years (usually 3 to 10) and for this reason you may hear of them called a CD-Type Annuity. 

A MYGA is the most simple and least complex type of annuity and provides a safe and steady way to grow your retirement savings.

 

How Do Multi Year Guaranteed Annuities Work?

When you purchase a multi-year guaranteed annuity, or MYGA, you sign a contract with an insurance company in which you pay the insurance company a premium in exchange for a guaranteed interest rate for a specified period of time. The term can be as short as 3 years or as long as 10 years.

If you’d like more upside potential while maintaining principal protection, a fixed index annuity may be another option to consider.

A MYGA provides principal protection and offers a safe and steady way to grow your retirement savings. If you need to withdraw more than the annual free withdrawal amount a surrender charge applies so it is important to know you are making a commitment to leave your money invested for the duration of your contract term.

At the end of the accumulation period, you can receive the premium and interest earned, or you may be able to renew the contract. If you choose to renew the contract, the interest rate may differ from the one you had originally agreed to.

Another option at the end of your contract is to 1035 your annuity to another insurance company which allows you to maintain tax deferral status.

Grandpa holding grandson outside myga page my annuity store

Pros of Multi-Year Guaranteed Annuities (MYGA)

  • Safety of principal
  • Guaranteed growth
  • Guaranteed retirement income
  • Leave a legacy
  • Access to your money
Illustration of woman with money going into safe and then the money coming out and the woman has aged

MYGA vs CD

As mentioned above, MYGAs work very much like a certificate of deposit (CD). Both a fixed annuity and a CD provide principal protection, meaning your account value will not decrease due to market performance.

 A fixed annuity, or MYGA, guarantees a set interest rate for a specified period of time – just like a CD. However, Fixed annuity guarantees are backed by the claims paying ability of the issuing insurance company and are not insured by the FDIC like a CD.

While not FDIC insuredState Insurance Guaranty Associations provide a safety net for their state’s annuity policyholders. These Guaranty Associations guarantee policyholders continue to receive coverage (up to the limits spelled out by state law) even if their insurer is declared insolvent. 

 FIXED ANNUITYCD (CERTIFICATE OF DEPOSIT)
SOLD BYInsurance CompaniesBanks
AMOUNT YOU CAN INVEST$2,000 - $1,000,000Essentially Any Amount
INVESTMENT DURATION3 years - 10 years3 months - 5 years
INTEREST RATESVaries by insurer, term and investment amount. Typically higher than CDsVaries by financial institution, term and investment amount.
LIQUIDITYVaries by insurer and annuity. Usually either 10% of account value or accumulated interest annually.Almost always accumulated interest.
GUARANTEESBacked by the claims paying ability of issuing Insurer and by State Guaranty Funds.Backed by the FDIC up to $250,000 per depositor, per institution.
DEATH BENEFITAsset passed directly to beneficiary without going through the probate processProbate process required to pass asset to heirs

Today's Best MYGA Rates

A multi-year guaranteed annuity, or MYGA, is a type of fixed annuity that offers a guaranteed fixed interest rate for a certain period, usually from three to 10 years. A MYGA is appropriate for someone who is closer to retirement, and prefers tax deferral and a guarantee of investment return.

Below is a chart that shows our best MYGA rates by term today. If you would like to shop and compare more MYGA annuities you can do so at our online annuity store.

 TermInsurerAnnuityA.M. BestRate
Silac insurance company 2yrSILACSecure Savings EliteB+2.15%
American equity 3yrAmerican EquityGuaranteeShield 3B++2.40%
0 thumb 2 4yrOxford Life Multi-Select 4A-2.25%
Atlantic thumb 2 5yrAtlantic Coast LifeSafe Haven 5B++3.00%
Atlantic thumb 2 6yrAtlantic Coast LifeSafe Haven 6B++3.07%
Sentinel security life logo 7yrSentinel Security LifePersonal ChoiceB++3.10%
Guaranty logo thumb 2 8yrGuaranty Income LifeGuaranty Rate Lock 8B++2.65%
Guaranty logo thumb 2 9yrGuaranty Income LifeGuaranty Rate Lock 9 B++3.00%
Atlantic thumb 2 10yrAtlantic Coast LifeSafe HarborB++3.20%

Tax Deferral

A MYGA offers tax deferral of interest that is compounded on an annual basis. This can create additional wealth exponentially because the tax occurs only when you take the money out. It’s like investing in an IRA or 401(k) but without the contribution limits.

The tax rules change slightly depending whether the funds are qualified or non qualified. If you purchase a MYGA with qualified funds, such through an IRA or other tax-advantaged account, you pay income tax on the principal and interest when you take out money. If you purchase a MYGA with nonqualified funds, you pay taxes only on the interest.

This tax benefit is not unique to MYGAs. It exists with traditional fixed annuities as well.

Airstream motorhome

Liquidity

A multi-year guaranteed annuity, or MYGA, is a type of fixed annuity that offers a guaranteed fixed interest rate for a certain period, usually from three to 10 years. A MYGA is appropriate for someone who is closer to retirement, and prefers tax deferral and a guarantee of investment return.

Almost all MYGA’s  allow for annual penalty- free withdrawals. Some fixed annuities allow for penalty- free withdrawals in the first contract year, but some don’t begin until year 2 (this varies by insurance company). The amount you could withdraw from an annuity annually without having to pay an early surrender charge penalty is typically 10% of your account value. However, some fixed annuities (MYGAs) allow interest only withdrawals instead. 

10% FREE WITHDRAWALS:  Allows the owner to withdraw 10% of the previous years account value annually without any penalty.  

INTEREST ONLY WITHDRAWALS:  Allows the owner to withdraw accumulated interest annually without penalty. Interest can be taken systematically monthly, quarterly, semi-annually or annually. Interest only free withdrawals are commonly available beginning year one, but this varies from company to company.

Amounts withdrawn in excess of the penalty-free withdrawal allowance may be subject to early withdrawal charges. Additionally, withdrawals prior to age 591/2 may be subject to IRS restrictions and a 10% federal penalty tax.

The below liquidity options are usually included in Multi Year Guarnteed Annuities if there are certain conditions that are met.

EXTENDED CARE WAIVER – After the first contract year, if you are confined to a nursing home or long-term care facility for at least 90 consecutive days, you have the option to withdraw up to 100% of the account value without incurring an early withdrawal charge.

TERMINAL ILLNESS WAIVER – After the first contract year, if you are diagnosed by a physician as having a terminal illness, you have the option to withdraw up to 100% of the account value without incurring an early withdrawal charge. A terminal illness is defined as having a prognosis of survival of 12 months or less, or a longer period as required by state law.

*Extended care and terminal illness waiver riders are not available in Massachusetts. In California, the Extended Care Waiver Rider has been replaced with the Waiver of Early Withdrawal Charges for Facility Care or Home Care or Community-Based Services Rider, which provides for a waiver of early withdrawal charges under an expanded variety of circumstances

After the first contract year, if you are confined to a nursing home or long-term care facility for at least 90 consecutive days, you have the option to withdraw up to 100% of the account value without incurring an early withdrawal charge.

Lifetime Income Options

A MYGA is almost always used as a safe accumulation vehicle and rarely thought of as a lifetime income option. However, all annuities must have the option to be converted into a lifetime income stream.  

All multi-year guaranteed annuities have annuitization rates built into the contract. This means you have the right to annuitize your annuity contract turning it into a guaranteed income stream for he rest of your life.

Since MYGAs are designed to credit a guaranteed interest rate and not necessarily priced for lifetime income the contractual annuitization rates are usually not as competitive as “new money” rates available in an income annuity.

For this reason, if  you wish to turn your annuity into a lifetime income stream at the end of your contract, we recommend shopping for the best lifetime income guarantee. Using a tax free 1035 exchange you are able to transfer an existing MYGA to an income annuity with incurring any tax ramifications.

Income payout options

Fixed period

You receive income benefit payments for a fixed period that you select.

Life or life with a minimum fixed period

You receive income benefit payments for life. If you select a minimum fixed period and die before the end of the period, the remaining income benefit payments are paid to the person you designate.

Joint and one-half survivor

Income benefit payments are guaranteed for your life and the life of a designated joint annuitant. If you are survived by the joint annuitant, he or she will receive 50% of the income benefit payment for life.

 

Tips when Shopping for a MYGA

Fixed annuities, or MYGAs, are the simplest of all annuities making them the easiest variety to shop for and compare. However, there are still a few important items to consider besides just looking for the highest guaranteed rate of return.

Duration: Typically the longer contract you purchase the higher your guaranteed interest rate will be. But that is not the case, especially given the current inverted yield curve. 

Liquidity: Most all fixed annuities have some type of annual free withdrawals, but the amount available varies by product. You’ll see most of the fixed annuities at our marketplace provide interest-only withdrawals annually. Others allow for 10% Free Withdrawals (10% of previous years account value) annually. 

Insurer Company’s Financial Rating: An indicator of an insurers’ ability to fulfill financial commitments to it’s policyholders. Usually, a lesser rated insurance company will offer higher fixed annuity rates, but that is not always the case. 

 

Our Insurance Company Financial Ratings Explained page is a great resource if you’d like to learn more about the main insurance company rating agencies and their corresponding ratings.

Frequently Asked Questions

Yes. Insurance companies as a whole have a long history of stability, even through our nation’s most difficult economic times. Fixed annuities, unlike variable annuities, are backed by the full faith and credit of the issuing insurance company.

A CD-type annuity is an industry coined term to describe a multi-year guarantee annuity. The interest rate is guaranteed in advance for a set number of years, similar to a bank CD.

In the broadest terms, an annuity is a contract between you and an insurance company, where you make a premium payment(s) in exchange for the benefits defined in the contract.

With fixed annuities, there are no fees, upfront loads or sales charges. 100% of your money goes into your contract without any expense to you. The only time you might experience a fee, is if you choose to add an optional rider that comes with a cost.

If you have a specific question we are happy to help in any way we can. We provide complimentary 30 minute consultations and are always available via phone and email. You can submit a question, request a quote and schedule your free consultation on our contact page.

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