What Is a MYGA?
A MYGA — Multi-Year Guaranteed Annuity — is the simplest annuity you can buy. You deposit a lump sum with an insurance company, and they guarantee a fixed interest rate for a set term (typically 2 to 10 years). Your principal is fully protected, the rate is locked for the entire term, and there are no annual management fees.
Think of it as a bank CD’s higher-performing cousin. Both products guarantee a fixed rate for a fixed term. The key differences: MYGAs typically pay 1.5 to 2 percentage points more than comparable CDs, your earnings grow tax-deferred (you don’t pay taxes until you withdraw), and MYGAs are issued by insurance companies rather than banks. In exchange, MYGAs aren’t FDIC-insured — they’re backed by the insurance company’s financial strength and claims-paying ability.
MYGA sales have surged in recent years. Fixed-rate deferred annuity sales (the category that includes MYGAs) topped $170 billion in 2025, according to LIMRA — driven by rates near 15-year highs and growing demand for principal protection among retirees and pre-retirees navigating the “Peak 65” wave of 4 million+ Americans turning 65 annually.
How Does a MYGA Work?
The mechanics are straightforward. You select a carrier and term, deposit your premium (usually a single lump sum), and the insurance company credits interest to your account at the guaranteed rate — compounding annually on most contracts. During the term, most MYGAs allow you to withdraw up to 10% of your account value per year without penalty. Withdrawing more than the free allowance triggers a surrender charge, which declines over the life of the contract and reaches zero at maturity.
Key MYGA Features
Guaranteed rate for the full term. Unlike traditional fixed annuities (where the rate may reset after year one), a MYGA’s rate is contractually locked for every year of the term. A 5-year MYGA at 5.50% pays 5.50% in year one and 5.50% in year five.
Tax-deferred compounding. Interest earned in a MYGA is not taxed until you withdraw it. Your full balance compounds each year — no chunk is lost to annual taxes the way it is with a bank CD. Over a 5 to 10 year horizon, this can add thousands of dollars to your account.
No annual management fees. MYGAs do not charge annual management fees, administrative fees, or mortality and expense charges. However, surrender charges apply if you withdraw more than the free-withdrawal allowance before the term ends. The insurer earns its margin on the spread between what their portfolio earns and the rate they credit to you.
Free withdrawal provisions. Most MYGAs allow you to withdraw up to 10% of your account value (or accumulated interest) each year without surrender charges. Some carriers waive surrender charges entirely for nursing home stays or terminal illness.
Death benefit. If you pass away during the term, your named beneficiary receives the full account value — typically without any surrender charges. Many contracts also allow spousal continuance, meaning your spouse can take over ownership rather than withdrawing.
MYGA vs. CD: Head-to-Head Comparison
MYGAs and CDs are often compared because they’re structurally similar — both guarantee a fixed rate for a fixed term. But the differences matter, especially for retirement savers:
| Feature | MYGA | Bank CD |
|---|---|---|
| Issuer | Insurance company | Bank / credit union |
| Typical 5-Year Rate | 5.50% – 5.70% (A-rated) | ~4.15% |
| Annual Fees | None | None |
| Tax Treatment | Tax-deferred until withdrawal | Taxed annually (1099-INT) |
| Protection | Backed by insurer’s financial strength & claims-paying ability | FDIC insured ($250K) |
| Early Access | 10%/yr penalty-free; surrender charge on excess | Varies; often forfeit interest |
| Terms Available | 2 – 10 years | 3 months – 6 years |
| Minimum Deposit | $2,500 – $25,000 (varies) | Often $0 – $1,000 |
| Convert to Income? | Yes — annuitize or 1035 exchange | No |
| Tax-Free Transfer | Yes (1035 exchange) | No |
| Probate Avoidance | Yes — beneficiary designation | Depends on titling |
The Tax Advantage Is Real
$100,000 in a 5-year CD at 4.15% (taxed annually at 24%) grows to about $117,300 after taxes. The same $100,000 in a 5-year MYGA at 5.50% (tax-deferred) grows to ~$130,700 — nearly $13,400 more. Even after paying taxes on the MYGA at withdrawal, the advantage is substantial.
MYGA Growth Calculator
This hypothetical illustration shows how your money could grow in a MYGA compared to a taxable CD. Actual results will vary.
Calculate Your MYGA Growth
This is a hypothetical illustration only. Actual results will vary based on the specific product, carrier, and individual circumstances. Not a guarantee of future performance.
How MYGAs Are Taxed
During the term: Zero taxes. Your interest compounds without any annual tax drag — unlike a CD, where you owe taxes every year on interest earned (even if you don’t withdraw it).
At withdrawal (non-qualified): If you bought the MYGA with after-tax money, only the interest earned is taxable as ordinary income. Your original deposit comes back tax-free.
At withdrawal (qualified/IRA): If you funded from an IRA or 401(k) rollover, the entire withdrawal is taxable — just as with any IRA distribution.
1035 exchange: You can transfer one MYGA to another annuity without triggering taxes. This is called a 1035 exchange — extremely useful at maturity when you want to shop for the best new rate and roll over tax-free.
Before age 59½: Withdrawals of earnings may incur a 10% IRS early withdrawal penalty, on top of regular income tax. This applies to both qualified and non-qualified MYGAs.
MYGA Pros and Cons
- Higher rates than CDs — typically 1.5%+ premium
- Tax-deferred growth — no annual tax drag
- No annual fees — no management, administrative, or M&E charges (surrender charges may apply for early excess withdrawals)
- Principal protection — not subject to market losses when held to maturity
- Rate locked for full term — immune to rate drops
- 1035 exchange — tax-free transfers at maturity
- Probate avoidance — passes directly to beneficiary
- Simple to understand — easiest annuity product
- Not FDIC-insured — backed by insurer financial strength only
- Surrender charges — penalty for early excess withdrawal
- 59½ rule — IRS penalty for early withdrawal of gains
- Taxed as ordinary income — not capital gains rate
- Inflation risk — fixed rate may trail rising prices
- Lump sum required — most MYGAs are single-premium
Who Should Buy a MYGA?
CD holders earning less than they should. If you’re parking $50,000+ in bank CDs earning 4% or less, a MYGA from an A-rated carrier can immediately boost your return by 1.5+ percentage points with similar safety.
Pre-retirees (5–15 years from retirement). Lock in today’s elevated rates and grow tax-deferred until you’re ready to convert to income or withdraw.
Portfolio de-riskers. Moving from stocks to safer assets? MYGAs are a strong bond alternative — offering a guaranteed rate rather than a market-dependent yield.
Tax-deferred overflow. Non-qualified MYGAs have no contribution limits, making them useful after you’ve maxed out your 401(k) and IRA.
Annuity ladder builders. Buy MYGAs with staggered terms (2, 3, 5, 7 years) so a portion matures each year — giving regular cash access while capturing higher long-term rates.
Who Should NOT Buy a MYGA?
MYGAs are excellent for the right person, but they’re not for everyone. You should probably look elsewhere if:
You may need the money before the term ends. MYGAs are designed to be held to maturity. If there’s a reasonable chance you’ll need more than 10% of your balance in any given year, a high-yield savings account or shorter-term CD may be a better fit.
You’re under 50 with a long time horizon. If retirement is 20+ years away and you can stomach volatility, a diversified stock portfolio has historically outperformed fixed rates over long periods. MYGAs shine for the portion of your portfolio that needs safety and predictability.
You want growth potential beyond the guaranteed rate. A MYGA will never earn more than the stated rate. If you want upside participation, consider a fixed index annuity (FIA) instead — though FIAs come with more complexity.
You prioritize FDIC insurance above all else. If government-backed deposit insurance is non-negotiable for you, stick with bank CDs. MYGA guarantees are backed solely by the financial strength of the issuing insurance company — which is why carrier ratings matter so much.
Is My Money Safe in a MYGA?
Two layers of protection underpin every MYGA:
Layer 1 — Insurance company reserves. State regulators require every insurer to maintain reserves specifically to meet policyholder obligations. These are strict, regularly audited requirements.
Layer 2 — Financial strength ratings. A.M. Best rates every insurer’s ability to pay claims. We recommend A- or above for long-term commitments. Every carrier’s rating is displayed in our rate table.
Best practice: For large deposits, consider diversifying across multiple highly-rated carriers to reduce concentration risk — similar to how prudent investors diversify across asset classes.
What Happens When Your MYGA Matures?
At the end of your term, you typically have a 30-day window to choose:
1. Withdraw everything. Take your full principal plus all accumulated interest, with zero surrender charges. The interest portion is taxable in the year you withdraw.
2. Renew with the same carrier. The carrier offers a new rate for another term. Compare with other carriers before accepting — your agent will shop rates for you.
3. Transfer to a different carrier (1035 exchange). If another carrier offers a better rate, move your money tax-free via a 1035 exchange. Your agent handles the paperwork.
4. Convert to income. Annuitize the MYGA — converting the lump sum into guaranteed monthly payments for life or a set period. This is an advantage MYGAs have over CDs.
If you take no action during the 30-day window, most contracts auto-renew at the carrier’s current rate (which may be lower). Your Annuity.com agent will contact you in advance with your options.
MYGA Laddering Strategy
Sophisticated savers often build a “MYGA ladder” — spreading their deposit across multiple terms so that a portion matures each year. This gives you:
Regular liquidity. Instead of locking up $200,000 for 5 years, you might put $50K into a 2-year, $50K into a 3-year, $50K into a 5-year, and $50K into a 7-year MYGA. Every year or two, a portion matures — giving you access to cash without surrender charges.
Rate diversification. If rates rise, your short-term MYGAs mature sooner and can be reinvested at the new higher rate. If rates fall, your longer-term MYGAs are still locked in at today’s higher rate.
Carrier diversification. Spreading across multiple highly-rated carriers reduces your exposure to any single insurer.
Your Annuity.com agent can help you build a ladder tailored to your income needs, tax situation, and risk tolerance. Start by browsing today’s rates across multiple terms.