MYGA vs. CD: Which Is Better for Safe Money?
What is a MYGA, and how is it different from a CD?
A multi-year guaranteed annuity (MYGA) is a fixed deferred annuity that credits one declared interest rate for a set guarantee period, commonly 3, 5, 7 or 10 years. The rate is written into the contract, so it does not change during the guarantee period, and the guarantee depends on the claims-paying ability of the issuing insurer.
A certificate of deposit (CD) is a time deposit at a bank or credit union that pays a fixed rate for a set term, commonly 3 months to 5 years. CDs at FDIC-insured banks are covered by the Federal Deposit Insurance Corporation up to $250,000 per depositor, per insured bank, for each account ownership category, as of October 2026. Credit union share certificates are covered by the NCUA on similar terms.
A MYGA is not a bank product, is not FDIC-insured, and is regulated by each state’s department of insurance rather than by banking regulators. Neither a MYGA nor a CD is an investment in the market: both credit a declared rate.
Many savers use both. LIMRA reported on March 23, 2026, that U.S. fixed-rate deferred annuity sales, the category that includes MYGAs, totaled $165.3 billion in 2025, up 6% from 2024.
How do a MYGA and a CD compare side by side?
| Feature | Bank CD | MYGA (fixed annuity) |
|---|---|---|
| What it is | Bank or credit union time deposit | Insurance contract issued by a life insurer |
| Who stands behind it | The bank, plus FDIC (or NCUA) coverage up to $250,000 per depositor, per institution, per ownership category | The issuing insurer’s claims-paying ability; not FDIC-insured |
| Regulator | Federal and state banking regulators | State department of insurance |
| Typical terms | 3 months to 5 years | 2 to 10 years |
| Rate | Fixed for the term | Fixed for the guarantee period |
| Taxes on interest (non-retirement money) | Generally taxable each year, reported on Form 1099-INT | Generally tax-deferred until withdrawn, then taxed as ordinary income, reported on Form 1099-R |
| Early access | Early withdrawal penalty set by the bank, often a few months of interest | Many contracts allow a free withdrawal each year (often 10% or the interest credited); surrender charges apply above that during the surrender period |
| Withdrawals before age 59½ | No IRS penalty | Taxable portion generally subject to a 10% additional federal tax unless an exception applies |
| At maturity | Often auto-renews after a short grace period | Window to withdraw, renew or move to another annuity with a 1035 exchange |
| On death | Paid to the payable-on-death beneficiary or the estate | Paid to the named beneficiary, generally outside probate; many contracts waive surrender charges at death |
Features vary by bank and by contract. Summarized as of October 2026. Not tax advice.
How is MYGA interest taxed compared with CD interest?
CD interest held outside a retirement account is generally taxable in the year it is credited, even if the interest stays in the CD. Banks report it on IRS Form 1099-INT.
MYGA interest held outside a retirement account is generally tax-deferred: you owe no federal income tax on it until you take it out. When you withdraw, the interest comes out first and is taxed as ordinary income, not as a capital gain. The IRS generally applies a 10% additional tax to the taxable part of annuity withdrawals taken before age 59½, unless an exception applies.
Tax deferral helps most when you expect to be in a lower tax bracket when you withdraw, or when you plan to keep the money deferred for many years. Over a short term at the same rate, the difference is usually modest.
Hypothetical example. Two savers each put $100,000 aside for 5 years at a hypothetical 4.50% fixed rate, and both are in a hypothetical 22% federal bracket throughout.
| Hypothetical CD | Hypothetical MYGA | |
|---|---|---|
| Rate | 4.50% | 4.50% |
| Tax paid along the way | Yes, each year | None until withdrawal |
| Value after 5 years, before any remaining tax | About $118,826 (after annual taxes) | About $124,618 |
| Value after 5 years, after federal tax at 22% | About $118,826 | About $119,202 |
This is a hypothetical illustration, not a projection or a quote. It ignores state taxes, assumes interest stays in the account, assumes no withdrawals or charges, and assumes the same bracket at withdrawal. Real rates differ by product and change often. This is not tax advice; talk with a tax professional about your situation.
The bigger difference in this example is control: the MYGA owner chooses when the tax is triggered, and can keep deferring by renewing or doing a 1035 exchange into another annuity.
How easy is it to get money out of a MYGA vs. a CD?
A CD’s early withdrawal penalty is set by the bank and disclosed when you open it, and it is often several months of interest. A MYGA’s surrender charge is usually a percentage of the amount withdrawn above the free-withdrawal allowance, often starting higher in year one and declining each year until it reaches zero at the end of the surrender period.
Points to check on any MYGA before you sign:
- Free-withdrawal provision: how much you can take each year without a surrender charge, and whether it starts in year one or year two.
- Surrender schedule: the charge for each contract year.
- Market value adjustment (MVA): some MYGAs adjust the surrender value up or down based on interest-rate changes if you withdraw beyond the free amount during the surrender period.
- Waivers: many contracts waive surrender charges at death, and some do for nursing home confinement or terminal illness. Read the exact conditions.
- Required minimum distributions: if the MYGA holds IRA money, ask whether RMDs from that contract are free of surrender charges.
When does a MYGA usually make more sense than a CD?
A MYGA tends to fit when most of these are true:
- You won’t need the money for the full guarantee period, and you have a separate emergency fund.
- You want a longer locked rate than many banks offer; MYGA terms commonly run 5 to 10 years.
- You’d rather not pay tax on interest every year on money outside a retirement account.
- You’re 59½ or older, or will be before you plan to withdraw.
- You want a named beneficiary on a contract that generally passes outside probate.
A CD tends to fit better when you may need the money within a year or two, you are under 59½ and may withdraw early, you want FDIC coverage specifically, or the amount is small. Many MYGAs require a minimum deposit, often in the thousands of dollars.
A common middle ground is to split the money: keep near-term cash in CDs or savings, and place money for later years in one or more MYGAs with staggered terms, sometimes called a ladder.
How do I check who backs a MYGA?
Because a MYGA’s guarantees rest on the issuing insurer, check the insurer’s financial strength rating from agencies such as AM Best, S&P Global Ratings, Moody’s or Fitch before you buy. Your state department of insurance can also confirm that the insurer and the agent are licensed to do business in your state. Under the NAIC Suitability in Annuity Transactions Model Regulation (#275), adopted by most states, an agent must have a reasonable basis to believe an annuity recommendation is in your best interest, including your liquidity needs and time horizon.
Who this is NOT for
A MYGA is probably not the right choice if:
- You may need most of the money before the surrender period ends.
- You’re under 59½ and expect to withdraw interest before then.
- You don’t have an emergency fund outside this money.
- You want FDIC coverage specifically.
- You want market-linked growth. A MYGA credits a declared rate and does not participate in any index.
If you have a CD coming due and want to see a fixed annuity next to it before it renews, a short call can lay out the guaranteed rate, surrender schedule and free-withdrawal terms side by side. Schedule a free call.
FAQ
Is a MYGA safer than a CD? They are protected differently. A CD at an insured bank is covered by the FDIC up to $250,000 per depositor, per bank, per ownership category. A MYGA is not FDIC-insured; its guarantees depend on the issuing insurer’s claims-paying ability, so check the insurer’s financial strength rating.
Do MYGAs pay more than CDs? Sometimes, but not always. Rates on both change often, so compare the guaranteed rate for the same length of time on the same day, along with surrender terms and taxes, rather than the headline number alone.
Can I lose money in a MYGA? A MYGA does not credit negative interest. You can get back less than you put in if you withdraw more than the free amount during the surrender period and pay surrender charges or a negative market value adjustment.
What happens when a MYGA term ends? Most contracts give a window, often around 30 days, to withdraw the money, renew at the insurer’s current rate, or move it to another annuity through a 1035 exchange, which is generally not a taxable event. If you do nothing, many contracts renew automatically, often into a new guarantee or surrender period.
Can I put IRA money in a MYGA? Yes. A MYGA can be set up as an IRA annuity through a direct rollover or transfer. The IRA already provides tax deferral, so the reasons to use a MYGA there are the locked rate and term, not extra tax deferral.
Is MYGA interest taxed as capital gains? No. Taxable interest from a MYGA is generally taxed as ordinary income when withdrawn. This is not tax advice.
CD maturing soon? Brandon will compare it with fixed annuity options by phone or video, wherever you live, at no cost. Schedule a free call.
Sources
- FDIC, Deposit Insurance FAQs: https://www.fdic.gov/resources/deposit-insurance/faq
- IRS, Publication 575, Pension and Annuity Income: https://www.irs.gov/publications/p575
- IRS, Publication 550, Investment Income and Expenses (interest income): https://www.irs.gov/publications/p550
- LIMRA via InsuranceNewsNet, “LIMRA: Final retail annuity sales total $464.1 billion in 2025,” March 23, 2026: https://insurancenewsnet.com/innarticle/limra-final-retail-annuity-sales-total-464-1-billion-in-2025
- NAIC, Suitability in Annuity Transactions Model Regulation (#275): https://content.naic.org/sites/default/files/model-law-275.pdf
Brandon Lenhoff is a licensed insurance agent and the owner of Lenhoff Financial Inc. in Lincoln, Nebraska. His team helps families across the U.S. evaluate Indexed Universal Life, fixed indexed annuities and other life insurance solutions, and reviews existing policies.
Brandon Lenhoff is a licensed insurance agent with Lenhoff Financial Inc. Insurance products only; this article is for educational purposes and is not tax, legal or investment advice. Guarantees are backed by the claims-paying ability of the issuing insurer.