Guides
Multi-year guaranteed annuities (MYGAs): how they work
A MYGA locks one interest rate for a set number of years. How the rate, surrender charges and end-of-term choices work, and how it compares with CDs.
A multi-year guaranteed annuity (MYGA) is a fixed annuity that locks in one interest rate for a stated number of years, commonly three to ten, and grows your money tax-deferred at that rate. When the term ends you choose what to do next. It resembles a certificate of deposit issued by an insurance company, with tax deferral and a surrender schedule instead of FDIC insurance.
How a MYGA works
You make a single deposit. The insurer guarantees the same rate for the whole guarantee period, which usually matches the surrender period. Interest compounds inside the contract and is not taxed until you withdraw it. A MYGA is a type of fixed annuity, and it is the simplest one: no index, no investment choices, no income rider.
Rates are set by the insurer and depend heavily on bond yields when you buy; how annuity rates are set and why they move explains why they move. A rate that looks high is not necessarily a bargain: check the term, the surrender charges and the insurer's strength.
Some products pay a rate that is the same every year. Others pay a higher rate in the first year and a lower guaranteed rate afterward. Compare the effective annual rate over the full term, not just the headline number.
What happens at the end of the term
Typically the insurer sends a notice before the term ends and gives a window, often 30 days or so, to act. Your choices:
- Renew for another term at the then-current rate, which may be lower or higher than the first.
- Exchange to another annuity, possibly at another company, without tax under section 1035.
- Withdraw the money and pay tax on the earnings.
- Annuitize the balance into lifetime or period income.
If you ignore the notice, many contracts roll into a renewal rate or a default option. Put the date on your calendar when you buy.
What it costs and what limits you
- Surrender charges. Withdrawals above the free amount, often around 10% a year, before the end of the term carry a declining charge. See annuity surrender charges and free withdrawals.
- Market value adjustment. Some MYGAs include a market value adjustment. If rates have risen since you bought, taking money out early can cost more than the stated charge; if rates have fallen, it can reduce the charge or add to your payout. A MYGA without an MVA is simpler to understand.
- Taxes. Earnings are ordinary income when withdrawn, and distributions before age 59 1/2 can carry a 10% additional tax unless an exception applies, per IRS Topic 410. See how annuities are taxed.
MYGA vs CD vs Treasury
| MYGA | Bank CD | Treasury | |
|---|---|---|---|
| Backed by | Insurer, plus state guaranty association up to limits | Bank, FDIC up to its limit | U.S. government |
| Interest taxed | When withdrawn | Each year | Each year (federal only) |
| Early exit | Surrender charge, maybe MVA | Penalty | Sell at market price |
| Lifetime income option | Yes | No | No |
| Typical minimum | Often a few thousand dollars or more | Often low | Low |
A MYGA often offers a higher rate than a CD of the same length, but part of the difference is compensation for insurer credit risk and lower liquidity. Whether tax deferral helps depends on your bracket now and when you withdraw. Inside an IRA you already have deferral, so the MYGA's benefit is just the rate and the guarantee; see Should you put an annuity in an IRA?.
Questions to ask before buying
- Is the rate the same every year, or does it step down after year one?
- What are the surrender charges by year, and is there a market value adjustment?
- How much can I withdraw each year without a charge, and are there waivers for nursing-home confinement or terminal illness?
- What happens at maturity if I do nothing?
- What are the insurer's financial strength ratings?
Safety
A MYGA's guarantee is backed by the insurer's general account. If the insurer fails, the state guaranty association pays benefits up to its limit. According to NOLHGA (as of June 1, 2025), most states cover $250,000 of annuity present value. Larger deposits can be split across companies. Check your state at the state guaranty association coverage lookup and compare insurer ratings.
A hypothetical ladder
Say a 62-year-old with $150,000 they will not need for several years splits it into three MYGAs of $50,000 each, with terms of three, five and seven years. As each matures, the money is renewed, spent or reinvested at then-current rates. This is the idea behind an building an annuity ladder: it reduces the risk of locking everything in at one rate and staggers the dates when cash comes free. The numbers are illustrative only; actual rates and surrender schedules vary.
Who a MYGA suits, and who it doesn't
Often suits:
- Savers wanting a known rate for a known time on money they will not need before the term ends.
- Retirees bridging a gap before Social Security or a pension starts.
- People with taxable savings who value deferral.
Often does not suit:
- Anyone who may need the cash early, since charges and an MVA can erase the extra yield.
- Those who want inflation protection or equity growth.
- Buyers who would be uncomfortable with insurer-credit risk beyond the guaranty limit.
- People who would hold it in an IRA only for the rate and could get a comparable CD or Treasury without a surrender schedule.
Key takeaways
- A MYGA is a fixed annuity with one locked rate for a set term, similar to a CD from an insurer.
- Decide ahead what you will do at maturity; renewal rates may be lower.
- Surrender charges and any market value adjustment limit early access.
- The guarantee is the insurer's, backed by state guaranty limits, not FDIC insurance.
- Compare against CDs and Treasuries on rate, tax and access, not the headline rate alone.