A Multi-Year Guarantee Annuity (MYGA) is one of the simplest and most transparent options in the annuity market. Essentially, it’s the annuity industry’s version of a certificate of deposit (CD)—with one key advantage: tax-deferred growth in non-IRA accounts.
If you’re seeking guaranteed interest without the unpredictability of market fluctuations, MYGAs are certainly worth considering.
What Exactly is a MYGA?
A MYGA is a fixed annuity that guarantees a set interest rate for a predetermined period, usually between 2 to 10 years. The key features of MYGAs are:
- No market risk
- No complex features
- A locked-in, guaranteed interest rate
Think of it as a CD, but instead of being backed by FDIC insurance, a MYGA is secured by the financial strength of the insurance company issuing it. Therefore, it’s important to choose reputable carriers that are financially stable and well-rated.
MYGA vs. CD: What’s the Difference?
While both products offer guaranteed returns, there’s a major difference in how they handle taxation:
- CDs: Interest is taxed annually in non-IRA accounts.
- MYGAs: The interest grows tax-deferred, meaning you don’t pay taxes until you withdraw the funds.
This tax deferral makes MYGAs especially attractive for individuals who don’t need to access the interest until later in life, like during retirement.
What’s the Ideal Term for a MYGA?
Typically, the best duration for locking in a MYGA rate is around five years. While you can find terms ranging from 2 to 10 years, most insurance companies don’t offer substantial rewards for committing beyond five years.
If you’re interested in diversifying your MYGAs, you might want to build a ladder strategy by purchasing contracts with varying lengths, such as 3, 4, 5, or even 7-year terms. But, for a single MYGA purchase, a 5-year term is often the most cost-effective option.
Surrender Charges: What You Need to Know
A common misunderstanding about MYGAs involves surrender charges.
For example, with a 5-year MYGA, you might face decreasing surrender charges like 9%, 8%, 7%, 6%, and 5% over the life of the contract. These fees apply if you withdraw money before the end of the term. The reasoning behind this is simple: the insurer has locked in your interest rate and doesn’t want you to pull out early.
Some insurers might auto-renew your contract term and surrender schedule unless you explicitly instruct them otherwise, while others may automatically lower your rate without any penalties.
The key takeaway: It’s crucial to fully understand what you’re purchasing and the specific terms that come with it.
How to Lock in Your MYGA Rate
MYGA rates are subject to frequent changes, and insurance companies rarely provide advanced notice. If you find a rate you like, you’ll need to apply immediately to lock it in. Once the insurer issues your policy number, the rate is secured. You’ll then have a brief window to fund the contract.
What Happens After You Purchase a MYGA?
Once you’ve bought a MYGA, you’ll receive a physical policy (though digital versions are available upon request).
- The Annuity Man team will review the policy before it’s sent to you.
- You will then enter a free-look period, typically lasting 10-30 days depending on state laws. During this time, you have the right to cancel the policy for a full refund if you change your mind.
This free-look period is one of the most consumer-friendly features of annuities, ensuring that you’re fully protected if your situation changes shortly after purchase.
Where to Compare MYGA Rates?
To find the best MYGA rates, it’s best to shop around. The Annuity Man offers a great platform to compare real-time rates based on your location and preferred term length. They represent a wide range of competitive carriers in the MYGA space.
If you’re ready to dive deeper into your options, you can schedule a call with Stan Haithcock directly to review all the details.
Why MYGAs Are So Appealing
For those seeking guaranteed growth without the worry of market risk, tax-deferred interest, and simplicity, MYGAs are a solid choice.
However, it’s important to understand:
- The surrender schedule (fees for early withdrawal)
- The free-look period (how long you have to cancel the contract)
- What happens at the end of the term (how your contract will renew or payout)
Before making any commitment, it’s critical to work with a professional who will walk you through the specifics of the contract—both before and after you buy. Remember, it’s not just about the rate; understanding the full terms of the annuity is key.
