Better Than CDs? The Allure of MYGAs
August 15, 2026 • By James Moore, CFP®
Insurance companies are always developing new products for sale. Although not new, a multi-year guaranteed annuity (MYGA) is a type of fixed annuity that has recently grown in popularity. With a MYGA, you make a lump sum deposit, and the insurance company guarantees a fixed interest rate for a set period, usually between three and 10 years. Access to your money is restricted until the end of that time period.
One of the biggest appeals of a MYGA is that yields can be a little higher than those of a bank certificate of deposit (CD), and those yields are guaranteed by the insurance company. If the bond environment becomes less favorable after you purchase your contract, your interest rate will stay the same. The flip side of that is also true. If the bond environment becomes more favorable after you purchase your contract, your interest rate will stay the same even if it is a lower yield than what you could get on the open market.
While a MYGA offers a guaranteed fixed rate and can yield more than a CD, it also carries several risks and limitations that investors should consider carefully. Here are some potential features you should fully understand before purchasing any MYGA product.
Surrender Charge
Before purchasing any annuity contract, it is vital to understand all the restrictions on accessing your money.
Every MYGA contract is different, but access to your money is usually restricted until the end of the selected term. If you withdraw money before the term ends, a surrender charge usually applies. A typical surrender charge schedule for a MYGA might start at 7-9% in the first year and decrease by 1% each year until it goes away at the end of the contract term.
For example, let’s say you purchase a seven-year MYGA with a starting surrender charge of 9%. You hold the contract for two years, but due to an unexpected emergency, you need to access the annuity funds early. Since you have owned the annuity for two years in this example, your surrender charge would be 7% (9% - 2%). For a $100,000 withdrawal, that would mean the insurance company would charge you $7,000 to withdraw your money.
Some annuity contracts have a penalty-free exception that allows you to withdraw a certain percentage annually without penalty. If that is the case, the surrender charge would only apply to withdrawals over the exception amount.
For comparison, if you were to surrender a CD before it matures, a typical early withdrawal penalty would be losing the last 90 days of interest, which is less punitive than that of a MYGA. A short-term bond fund has no early withdrawal penalty since you can sell it on the open market at any time, but it does have some volatility risk. A money market fund has no early withdrawal penalty and no volatility risk. It is important to consider how the liquidity of each investment lines up with your timeline for needing the money, rather than only focusing on the stated yield of each investment.
Market Value Adjustment Clause
Many MYGAs have a contract clause called a market value adjustment. If you surrender the policy before the maturity date, the annuity company may adjust your final payout based on current interest rates. If you had originally purchased the MYGA for safety and certainty, this would not be ideal. The market value adjustment means that the guaranteed interest rate is only guaranteed if you hold the annuity until final maturity at the end of its term.
Credit Risk
Annuities are not FDIC insured like CDs or bank deposits. Instead, they are backed by state guaranty associations. If you are considering an annuity, it is important to consider the credit risk of the insurance company selling it. Safer, more financially stable insurance companies tend to pay lower yields, while less financially stable insurance companies tend to pay higher yields.
Annuity Tax Rules
It is important to understand how annuity taxation works. If you purchase an annuity with qualified funds [inside a pre-tax account like a 401(k) or IRA], then the annuity does not provide any additional tax benefits because the 401(k) or IRA is already a tax-deferred retirement account. Withdrawals are fully taxable income.
If you purchase an annuity with non-qualified funds (after-tax money), the rules are different. Taxes on the interest earned inside the annuity are deferred until a withdrawal is made, at which point it will be treated as taxable income. Withdrawals of principal do not count as taxable income. The IRS uses the last-in-first-out (LIFO) method when determining annuity earnings versus principal, which means that they assume you are withdrawing taxable earnings first.
If you withdraw money from your MYGA before you are age 59.5, the IRS will impose a 10% early withdrawal penalty. This penalty is in addition to the ordinary income taxes you would owe by withdrawing taxable earnings. The 10% penalty for withdrawals before age 59.5 applies to both qualified and non-qualified annuities.
When the Annuity Term Ends
Contracts for MYGAs typically give you a 30-day window to make an election when your annuity term ends. You have a few options at this point, including surrendering the annuity or initiating a 1035 exchange to purchase a new annuity. If you surrender the annuity, you will owe tax on all the deferred interest earned inside the annuity over the term. If you exchange the annuity for a new product, the earnings will remain tax-deferred. The surrender charge schedule will reset when you exchange into a new annuity, so you need to be sure that you will not need access to the money for whatever new term you purchase.
There is a hidden risk involved here when the annuity term ends. If you do not give the insurance company explicit instructions before the 30-day window closes, you will typically be automatically locked into a new contract. This contract term could be the same length as your original contract term, and the surrender charge schedule will reset. If this happens, you might find your money locked up all over again for a significant period of time.
The insurance company is under no obligation to give you a competitive rate on an automatic renewal. They will do it at their “default renewal rate,” which can be significantly lower than what you could get on the open market.
In practice, most people are busy living their lives and can easily miss filing the appropriate paperwork within this 30-day window. We have met with prospective clients for whom this has happened. By the time they noticed their policy maturing and got around to considering their options, their policy had already automatically renewed. If you are planning to purchase a MYGA, it is essential to remember the deadlines laid out in your contract and to be timely with filing all the paperwork that the insurance company requires.
Does the MYGA Make Sense for You?
Because of the liquidity restrictions mentioned earlier, a MYGA would generally not be appropriate for a short-term investment that requires liquidity, such as an emergency fund. The liquidity constraint also creates a planning challenge when a MYGA is used as a bond alternative in a long-term portfolio, as there is no guarantee that the funds will be available when needed for withdrawals or rebalancing.
A MYGA could potentially be appropriate for someone with an extremely low risk tolerance, who is OK with illiquidity and accepting lower investment returns in exchange for a guarantee from an insurance company, and who would still be able to meet their financial goals even if invested very conservatively.
Remember that there is no free lunch with a MYGA. The annuity company is making money on a spread — otherwise, they wouldn’t be offering the product! The insurance company takes your deposit, invests in higher-yielding investments, pays you the lower rate they promised, and keeps the difference as profit. This is perfectly reasonable for them to do since they are providing a guarantee, which has value to some people. But in the long run, most people will likely achieve better investment returns by directly investing in a diversified portfolio instead of offloading investment risk to an insurance company.
If you have questions about an annuity that you are considering or already own, we are happy to help you evaluate your options. We do not sell annuities, and as fee-only financial advisors, we do not receive sales commissions from any investments we recommend. Please feel free to schedule a complimentary phone call or meeting with one of our fee-only financial advisors.