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Multi-Year Guaranteed Annuities, Explained
A multi-year guaranteed annuity is a type of fixed annuity. As the name suggests, fixed annuities offer a fixed interest rate. The key difference between MYGAs and traditional fixed annuities is the length of time that rate is guaranteed.
With a traditional fixed annuity, the guarantee may only last for part of your contracted term. For example, you might purchase an annuity contract with a 10-year term, but your rate may only be guaranteed for the first five years.
A MYGA, on the other hand, would guarantee your rate for the entire contracted term, typically between one and 10 years.
MYGAs vs. CDs
Multi-year guaranteed annuities are often mentioned in the same breath as certificates of deposit because they’re similar in nature.
A CD requires you stash away your money for a specific period of time. Once the CD reaches the maturity date, you have the option to renew it (at the current interest rate) or withdraw your initial deposit, along with the interest earned.
You may also be able to renew a MYGA at the end of your contract. If you do, the interest rate may vary from what you originally signed up for. As with CDs, you’ll be offered whatever the current rate is at the time of renewal, which could be higher or lower than what you had been earning.
If you choose not to renew your MYGA with a new contract, you could instead withdraw the principal and interest. Your annuity company may allow a penalty-free window to do so, in which you wouldn’t pay any surrender charges or other fees. Within that window, you could also transfer the money into a new, higher-yielding annuity using a 1035 exchange without triggering a tax penalty.
That said, there are several key differences between MYGAs and CDs:
- A MYGA is a contract with an insurance company, while a CD is issued by a bank or broker.
- CDs sold by a bank are FDIC-insured, while MYGAs are not.
- A MYGA may allow for partial withdrawals each year without a tax penalty. CDs typically impose an early-withdrawal penalty for taking money out prior to maturity.
- A MYGA may offer more competitive interest rates than a CD.
- Compared to CDs, annuities tend to carry more fees and growth is tax-deferred, while you’ll have to pay annual taxes on the interest with a CD.
Fixed-rate short-term annuities are a safe alternative to Bank CDs but have guaranteed interest rates as high as 3.25%! Check out our FREE report showing the top-yielding annuities in the country.
What are the best options for a secure, safe retirement? On one hand, you’ve got the volatility and risk of the stock market. On the other, Bank CD rates are so low right now; you could be going backward after factoring in inflation. We rank the top fixed annuities in the country to help you find the smartest, safest way to secure your retirement. Click to get your FREE fixed annuity rate report.