When it comes to retirement planning, having guaranteed returns is crucial. Multi-Year Guarantee Annuities (MYGAs) offer one of the most straightforward ways to achieve just that. However, if you’ve been browsing MYGA rates online, you’ve probably encountered confusing jargon and too-good-to-be-true promises. Let’s break it down clearly so you know exactly how MYGAs work, what affects their rates, and how to lock in the best deal for your retirement.
What Exactly Is a MYGA?
Think of a MYGA as the insurance industry’s version of a Certificate of Deposit (CD). It’s a simple and secure investment offered by life insurance companies, not banks or Wall Street. Here’s how it works:
- You invest a lump sum, and in return, the insurance company guarantees a fixed interest rate for a specified period—usually between 2 and 10 years.
- Your principal is protected, meaning you won’t lose the original amount you invested.
- The interest compounds tax-deferred until you withdraw it (if it’s outside of an IRA).
- No market exposure, no surprises, just a guarantee from the insurance company.
MYGA vs. CDs vs. Treasuries: What’s the Difference?
When it comes to low-risk investments, MYGAs often get compared to CDs and Treasuries. Here’s how they stack up:
- CDs are offered by banks, insured by the FDIC, and their interest is taxable every year.
- Treasuries are backed by the U.S. government, with interest free from state taxes but still subject to federal taxes.
- MYGAs are issued by insurance companies, with tax-deferral on interest and no market risk.
General Rule of Thumb for Duration
- If you’re looking at an investment horizon of 3 years or less, a CD or Treasury might be the better choice.
- For durations between 4 to 10 years, MYGAs tend to offer the best fixed-rate guarantees.
Understanding MYGA Rates
The key to maximizing your MYGA is understanding how the rates work. Simply put, the higher the rate, the more guaranteed growth you can expect without touching your initial investment.
For example, a $500,000 investment in a 5-year MYGA at 5% would earn $25,000 in interest every year. After five years, you still have your original $500,000 intact. This means you can take the interest (the “peel-off”) without touching your principal.
How to Find the Best MYGA Rates
MYGA rates are constantly changing, and securing the best one requires a little effort. To lock in the best rate:
- Compare multiple insurance carriers.
- Look at various durations (some may offer higher rates for longer terms).
- Understand that rates differ by state, so always check the rates available in your area.
Many financial advisors only work with a few companies, so they may not have access to the most competitive rates. That’s why tools like The Annuity Man’s real-time MYGA quotes can help you see the best options available across the country.
Common Myths About MYGAs
- “MYGAs have hidden fees.”
Not true. There are no annual fees. The insurance company profits from the spread between the interest they pay you and what they earn from investing your money. - “I’ll lose access to my money.”
You can withdraw the interest each year, and at the end of the term, you get your full principal back. - “MYGAs are risky because they’re not FDIC insured.”
While MYGAs aren’t FDIC-insured, they are backed by the financial strength of the issuing insurance company and protected by state guaranty associations. It’s not risk-free, but it’s highly secure.
Frequently Asked Questions About MYGA Rates
- What if MYGA rates drop after I lock in a rate?
That’s the beauty of MYGAs—you’re guaranteed a fixed rate, so even if market rates fall, you’re locked into the higher rate you secured. - What if rates go up after I buy a MYGA?
Unfortunately, you won’t benefit from future rate increases until your contract term ends. Some people address this by “laddering” MYGAs, purchasing contracts with different end dates. - Are MYGAs good inside IRAs?
Yes, they can be, but since IRAs are already tax-deferred, the tax-deferral benefit isn’t as significant. The primary benefit is the guaranteed rate of return. - Can I lose money in a MYGA?
As long as you don’t withdraw early and incur penalties, your principal is protected.
When Does a MYGA Make Sense?
MYGAs are ideal when you want:
- Protection of your principal without market volatility.
- A guaranteed rate of return over a fixed period.
- Supplemental income that can be “peeled off” for spending purposes.
- A safe, stable place to park money during uncertain market times.
If you’re hoping for high equity-like returns, a MYGA might not be for you. But if you want guarantees and stability, it could be a great fit.
The P.I.L.L. Framework for Annuities
Every annuity is designed to address one or more of these four needs:
- Principal Protection
- Income for Life
- Legacy
- Long-Term Care/Confinement Care
MYGAs mainly solve for Principal Protection—keeping your investment safe and providing steady returns.
Final Thoughts on MYGA Rates
When shopping for MYGA rates, don’t get sidetracked by flashy sales pitches or misleading claims. The key is the contract—the guarantee it provides for your principal and rate of return.
A solid MYGA will:
- Protect your initial investment.
- Offer a fixed rate for the term you choose.
- Fit seamlessly into your retirement strategy, providing a safe, low-risk growth option without exposing you to market swings.
In short, locking in the best MYGA rate is about securing a reliable, contractually guaranteed return for your money.
