What is a Multi-Year Guarantee Annuity (MYGA)
A Multi-Year Guarantee Annuity (MYGA) is a type of fixed annuity that provides a guaranteed interest rate for a specific number of years. MYGAs are designed for people who want stable, predictable growth without exposure to market volatility. Use our Annuity Calculator below to get instant quotes for Multi-Year Guarantee Annuities. Once you have your quote, schedule a discussion with an independent licensed insurance agent to help you through the planning process. Get ALL SET (Simple + Educational + Transparent) with KCIIS.
Key Points:
- MYGAs are often compared to Certificates of Deposit (CDs), but they generally offer higher interest rates and tax-deferred growth.
- The rate is locked in for a set term (typically 3, 5, 7, or 10 years).
- Insurance companies, not banks, issue them.
- At the end of the term, you can renew, withdraw, or move your funds.
You can annuitize a MYGA for income, but a Hybrid Pension (FIA with an income rider) often provides higher lifetime payouts and more control. KCIIS will help you determine which approach best fits your plan.
How Do MYGAs Work?
When you purchase a MYGA, you make a single lump-sum deposit with an insurance company. In return, they guarantee a fixed interest rate on your money for the term you choose.
Key Points:
- Your principal and interest are protected from market loss.
- Earnings compound tax-deferred until withdrawn.
- After the term ends, you can:
- Renew the annuity for a new term,
- Transfer to another annuity (1035 exchange), or
- Take withdrawals or income payments.
- Many MYGAs allow limited annual withdrawals (often 10%) without penalty
Different Kinds of MYGAs
While all MYGAs share the same fixed-rate structure, there are variations based on flexibility and payout options.
| Type of MYGA | Description | Best For |
|---|---|---|
| Traditional MYGA | Fixed rate for the full term (3–10 years). | Conservative savers seeking guaranteed growth. |
| MYGA with Liquidity Option | Allows penalty-free withdrawals each year. | Those who may need access to some funds. |
| MYGA with Income Rider | Converts value into guaranteed lifetime income. | People planning to supplement retirement income. |
| MYGA with Market Value Adjustment (MVA) | Offers potentially higher rates but may adjust value if cashed out early. | Savers comfortable with holding full term. |
Key Points:
- The main difference between MYGAs is liquidity and flexibility.
- Longer terms typically offer higher guaranteed rates.
MYGA vs. CD vs. Fixed Index Annuity (FIA)
| Feature | Multi-Year Guarantee Annuity (MYGA) | Fixed Index Annuity (FIA) | Certificate of Deposit (CD) |
|---|---|---|---|
| Issued By | Insurance company | Insurance company | Bank or credit union |
| Guarantee Type | Fixed interest rate for a set term (3–10 years) | Interest linked to a market index (S&P 500, etc.) but principal is guaranteed | Fixed interest rate for a set term (usually 6 months–5 years) |
| Principal Protection | Yes | Yes | Yes (FDIC-insured up to $250,000) |
| Interest Rate | Typically higher than CDs | Varies, based on index performance and caps or participation rates | Lower, depends on bank market rates |
| Tax Treatment | Tax-deferred growth | Tax-deferred growth | Interest taxed annually |
| Liquidity | Partial withdrawals (usually 10% per year penalty-free) | Limited, may offer income riders or partial withdrawals | Limited, penalties for early withdrawal |
| Surrender Period | 3–10 years | 5–10 years (sometimes longer) | 6 months to 5 years |
| Early Withdrawal Penalties | Surrender charges and possible Market Value Adjustment (MVA) | Surrender charges and possible MVA | Bank penalties |
| Ideal For | Safe, predictable growth with tax deferral | Growth tied to market index with protection from loss | Short-term savings or emergency funds |
| Income Options | Optional lifetime income riders | Income riders or annuitization for lifetime income | None |
| Risk Level | Low | Low to moderate (depending on index strategy) | Very low |
| State Guaranty Coverage | Yes (up to state limits, often $250,000 per owner per company) | Yes (up to state limits, often $250,000 per owner per company) | FDIC-insured |
| Common Term Lengths | 3, 5, 7, or 10 years | 5, 7, 10 years or longer | 6 months to 5 years |
Key Points:
- MYGAs offer guaranteed growth with tax deferral and higher yields than CDs.
- CDs are ideal for short-term savings but offer taxable interest and lower rates.
- FIAs add potential upside linked to the market, while keeping your principal safe.
- MYGAs work well for conservative investors who value certainty and stability.
Frequently Asked Questions about MYGAs
Is a MYGA safe?
Yes. A MYGA is considered very safe because your principal and guaranteed interest are protected from market loss and backed by the issuing insurance company, with additional protection from your state guaranty association (typically up to $250,000 per owner per company).
What happens if interest rates rise?
Your MYGA rate is locked in for the full term, even if market rates change. If rates rise, you can choose shorter terms or renew, exchange, or reposition your MYGA at the end of the term to take advantage of higher rates.
When do I pay taxes?
MYGAs grow tax-deferred, meaning you don’t pay taxes on interest until you withdraw money. This can make MYGAs more tax-efficient than CDs, which are taxed annually.
Can I lose money in a MYGA?
No. As long as you follow the contract terms, you cannot lose money due to market performance. Both your principal and credited interest are guaranteed, regardless of market conditions.
Can a MYGA provide income?
Yes. A MYGA can be converted into income through annuitization or an optional income rider, though in many cases a Hybrid Pension (FIA with an income rider) may provide higher lifetime income and greater flexibility depending on your situation. KCIIS can help you compare both options
Common Objections to MYGAs
“I don’t want my money locked up.”
KCIIS Insight: While MYGAs do have surrender periods, many allow 10% free withdrawals each year and can be structured with shorter terms.
“What if the insurance company fails?”
KCIIS Insight: Insurance companies are highly regulated, and your contract is protected by your state’s guaranty association (usually up to $250,000 per owner per company).
“I might get a higher return elsewhere.”
KCIIS Insight: MYGAs are designed for safety and predictability, not speculation. They often outperform similar-term CDs after taxes are considered.
“Aren’t annuities complicated?”
KCIIS Insight: MYGAs are actually among the simplest annuities. You deposit your money, earn a guaranteed rate, and decide what to do at the end of the term.
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