Quick answer
A MYGA (multi-year guaranteed annuity) is a fixed annuity that locks in one interest rate for a set number of years, usually three to ten. MYGA rates are set by each insurance company and change often, so a licensed agent can quote today's rate. In exchange for the guarantee, you agree to leave most of the money in place until the term ends.
If you have savings you want to grow at a known rate for a few years, you have probably seen the term MYGA. This guide explains what a multi-year guaranteed annuity is, how insurers set the rate, the rules about getting your money out, and how a MYGA is built differently from a bank CD or a Treasury. It does not list specific rates, because they change too often to publish responsibly.
What is a MYGA?
A MYGA is a contract between you and a life insurance company. You deposit a lump sum. The company promises to credit a fixed interest rate for a set term. Interest compounds inside the contract and is not taxed until you take it out. When the term ends, you decide what to do next.
MYGAs are sometimes called fixed-rate annuities or CD-type annuities. They are the simplest kind of deferred annuity: no market index, no stock exposure, and no moving parts in the crediting rate during the guarantee period.
How the guaranteed rate is set
Insurance companies invest the money they receive mostly in high-quality bonds. The rate a company can offer on a new MYGA depends on:
- Interest rates in the bond market when you buy. When bond yields rise, new MYGA rates tend to rise, and the reverse.
- The term length. Longer terms often, but not always, carry higher rates.
- The company's own needs. A carrier that wants to attract more deposits may price more aggressively.
- Deposit size. Some contracts pay a slightly higher rate above a certain amount.
- Contract features. More generous withdrawal or death-benefit features can mean a slightly lower rate.
Once your contract is issued, your rate is locked for the guarantee period. Changes in the market after that do not affect it.
Term lengths, surrender charges and free withdrawals
Common MYGA terms are three, five, seven and ten years. Each contract has a surrender period, usually the same length as the term. If you take out more than the contract allows during that period, the company keeps a surrender charge, typically a percentage that shrinks each year.
Many contracts include a free-withdrawal provision, such as the interest earned or up to 10% of the value each year, without a charge. Some also waive charges for a nursing home stay, terminal illness or death. Some contracts include a market value adjustment, which can raise or lower what you receive if you surrender early depending on how interest rates have moved. Ask for the exact rules in writing.
How a MYGA is structured compared with CDs and Treasuries
People often compare MYGAs to CDs and Treasuries because all three offer a fixed rate for a fixed time. The structures differ in important ways. This table compares how they work, not which will earn more.
| Feature | MYGA | Bank CD | U.S. Treasury |
|---|---|---|---|
| Issued by | Life insurance company | Bank or credit union | U.S. government |
| Backing | Insurer's claims-paying ability | FDIC or NCUA insurance up to limits | Full faith and credit of the U.S. |
| Taxes on interest | Tax-deferred until withdrawn | Taxed each year | Taxed each year federally; exempt from state income tax |
| Early access | Free-withdrawal allowance; surrender charge above it | Early-withdrawal penalty | Can be sold before maturity at market price |
| Withdrawals before 59½ | Earnings may face a 10% IRS penalty | No age penalty | No age penalty |
| At maturity | Withdraw, renew, exchange or annuitize | Withdraw or renew | Paid back at face value |
Treasury details are published by the U.S. Treasury, and the IRS explains annuity taxation in IRS Publication 575.
Tax deferral
Interest inside a non-qualified MYGA is not taxed each year. You pay ordinary income tax on the earnings when you withdraw them. That can help if you expect to be in a lower tax bracket later, or if you simply do not need the interest now. Withdrawals are generally treated as earnings first. Taking earnings before age 59½ can add a 10% federal penalty, with some exceptions. You can also buy a MYGA inside an IRA, in which case the IRA rules apply.
Carrier financial strength
A MYGA guarantee is only as strong as the company behind it. Independent agencies rate insurers on their ability to pay claims. Ask for the carrier's current ratings and compare them. Do not choose a contract on rate alone.
- Is the rate guaranteed for the entire surrender period?
- What is the surrender charge each year, and is there a market value adjustment?
- How much can I withdraw each year without a charge?
- Are charges waived for nursing home care, terminal illness or death?
- What happens automatically at the end of the term?
- What are the carrier's financial strength ratings?
A MYGA can be a reasonable fit for money you will not need during the term. It is usually a poor fit for an emergency fund. A licensed agent can compare MYGAs from the carriers we work with and quote today's rates.
