By Drew Gurley
When people compare safe savings vehicles like a certificate of deposit (CD) to an annuity, one option that often stands out is the CD-type annuity, commonly known as a Multi-Year Guarantee Annuity (MYGA).
MYGAs are a type of annuity that offer a fixed interest rate for a set period, much like a CD, but they come with unique advantages that make them especially useful in retirement planning.
My name is Drew Gurley and as an insurance agent, I’ve helped many individuals evaluate MYGAs in collaboration with their financial and wealth management advisors. Let’s break down how they work, who they’re best for, and why working with an expert matters.
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What Is a MYGA?
A MYGA is a fixed annuity offered by a life insurance company that provides a guaranteed interest rate for a specified period such as 3, 5, or 10 years.’
Unlike a regular savings account or a CD that’s FDIC insured through the Federal Deposit Insurance Corporation (FDIC) or protected by the National Credit Union Administration (NCUA), a MYGA is backed by the claims-paying ability and financial strength of the issuing insurance company.
While CDs credit interest annually and are taxed each year, MYGAs allow your money to grow tax-deferred. That means you don’t owe income tax until you take withdrawals, giving you more compounding potential over the number of years you hold the contract.
MYGA vs. CDs and Other Savings Options
Many people view MYGAs as a stronger alternative to CDs or a savings account because:
- Higher Interest Rates: MYGAs often offer higher interest rates than banks can provide.
- Tax-Advantaged Growth: Unlike CDs, interest inside a MYGA grows tax-deferred until you take distributions.
- Flexibility in Retirement Planning: At the end of the guarantee period, you can renew, take a lump sum, or convert into an income stream.
It’s important to note that MYGAs are insurance products, not bank deposits.
While CDs are FDIC insured, MYGAs rely on the financial strength of the insurance company. That’s why independent ratings such as A.M. Best are critical when evaluating providers. Additionally, working with an insurance agent with experience navigating the various companies that offer these products.
Benefits of CD-Type Annuities
- Predictable Growth: You lock in a fixed interest rate for the full period of time, regardless of market swings.
- Retirement Income Options: At maturity, MYGAs can be used to create a lifetime income through deferred income annuities or immediate income annuities.
- Flexibility: MYGAs work well for both short-term and longer terms, depending on your risk tolerance and financial goals.
- Retirement Account Integration: They can be purchased with IRA funds, giving you additional tax-advantaged growth opportunities. This is where having an insurance agent who can properly work together with your financial advisor is very important.
Considerations and Risks
Like all annuity products, MYGAs come with factors to weigh carefully:
- Surrender Charges: If you withdraw before the end of the specified period, you may face surrender charges or early withdrawal penalties.
- Liquidity: MYGAs aren’t designed for everyday access like a savings account. Most allow only limited penalty-free withdrawals.
- Insurance Company Risk: The guarantees are only as strong as the issuing life insurance company. Checking A.M. Best ratings and evaluating the carrier’s claims-paying ability is essential.
- IRS Rules: Withdrawals before age 59½ may be subject to both income tax and additional penalties.
Who Should Consider a MYGA?
A multi-year guarantee annuity may be a good fit if you:
- Want predictable growth with a fixed annuity.
- Are seeking better annuity rates and rate of return than a regular savings account or CD.
- Need safe, shorter terms or longer terms depending on your timeline.
- Value steady, tax-advantaged growth as part of your retirement savings strategy.
MYGAs can also complement other annuity products such as an index annuity for those seeking market participation, or an income stream annuity for guaranteed payouts.
Why Work With an Expert
The world of insurance products and annuity products is broad, and choosing the right solution requires expertise. MYGAs are straightforward, but the pricing, available interest rate, liquidity features, and suitability for your overall financial planning vary by carrier.
As a licensed insurance agent, I work with leading financial advisors, review current annuity rates, evaluate the financial strength of insurance companies, and ensure your MYGA aligns with your retirement income and long term care considerations.
Whether you live in New York or anywhere else in the country, having an experienced partner makes all the difference.
Do You Want an Annuity Quote to Review Today?
Call or Text Drew Now to Request a Quote
Contact Drew Now: 314-795-5366
(No Obligation & We Never Sell Your Information)
Final Thoughts
A CD-type annuity may be one of the most overlooked tools in retirement planning today. With predictable growth, tax-deferred earnings, and the ability to roll into a future income stream, MYGAs provide both security and flexibility.
If you’re exploring multi-year guarantee annuities as part of your retirement savings plan, I encourage you to talk with me. I’ll help you evaluate carriers, compare annuity products, and design a strategy that matches your financial goals and risk tolerance.