A Multi-Year Guaranteed Annuities (MYGA) is a hybrid of a fixed annuity and CD. The MYGA guarantees a fixed rate for the entire duration of the contract’s terms, anywhere from 1 to 10 years. Rates range from 3-10%, depending on the insurance company, national interest rates, and the chosen contract term.
The Difference Between a MYGA and Fixed Annuity
The key distinction between a MYGA and fixed annuity is the term of the guaranteed rate. A MYGA annuity’s rate is guaranteed for the full contract term. Fixed annuities, although offering the same guaranteed rate, only guarantee it for part of the term.
Example: An 8 year, 6% fixed annuity might guarantee this rate for only the first 5 years. An 8 year, 6% MYGA annuity guarantees its rate for the full 8 years.
Difference Between a MYGA Annuity and CDs
The MYGA annuity offers many of the same features as a typical CD. Difference number one is that CDs are issued by banks/brokers while MYGA annuities are issued by insurance companies. This means that CDs are insured by the FDIC up to $100,000 for non-retirement accounts. Annuities are not FDIC insured, but are safeguarded by individual state reserves. Annuity coverage varies state-to-state, ranging from $100,000 to $300,000.
A second difference is that MYGA annuities can be rolled over without triggering a tax-event. Using what’s known as a 1035 exchange, the MYGA annuity owner can transfer money from one annuity to another without showing an income. This is not possible with CDs, which generate income statements every year.
A third difference is that you can make partial withdrawals from a MYGA annuity. Unlike a CD, a typical MYGA annuity will allow you to withdrawal up to 10% of the initial investment annually. This feature is very desirable because it covers unexpected withdrawal needs. In contrast, liquidating even part of a CD requires you to cash out the whole thing and pay a sizable surrender charge.