MYGA vs. CD: where to put money you won't touch for 3 to 10 years
Both pay a fixed rate for a set term. The differences are in the guarantee behind them, the taxes, and what happens if you need the money early.
If you have money in CDs that you don't expect to need for a few years, a MYGA (multi-year guaranteed annuity) is worth comparing. Both lock in a fixed rate. They're backed and taxed differently.
| Bank CD | MYGA | |
|---|---|---|
| Issued by | A bank or credit union | An insurance company |
| Typical terms | 3 months to 5 years | 3 to 10 years |
| Backing | FDIC or NCUA insurance, up to $250,000 per depositor, per bank, per ownership category | The insurer's financial strength, plus your state's guaranty association; limits vary by state and are commonly $250,000 in annuity value per person, per company |
| Taxes (outside an IRA) | Interest is taxed every year, even if you don't take it out | Interest grows tax-deferred until you withdraw it |
| Leaving early | Penalty, usually several months of interest | Surrender charge for the term, sometimes with a market value adjustment; plus a 10% IRS penalty on earnings before 59½ |
| Access during the term | Usually none without a penalty | Often the interest, or about 10% a year, with no charge |
| At the end | Short grace period to move it, then it often renews automatically | A window to take it, renew, or move it to another annuity tax-free |
Which one wins?
It depends on three things:
- When you'll need the money. Anything you might need within two years belongs in a CD, a savings account or a money market fund. A MYGA fits money you can leave for the full term.
- Your tax bracket. Tax deferral matters most if you're in a higher bracket now and expect a lower one later, such as in retirement.
- The rates on the day you compare. Rates change constantly, so compare current quotes side by side, for the same term.
How to compare a MYGA quote
- Is the rate guaranteed for the whole term, or only the first year?
- What's the surrender charge each year, and is there a market value adjustment?
- How much can you take out each year with no charge?
- What's the insurer's A.M. Best rating?
A slightly lower rate from a highly rated insurer, with a shorter surrender period, is often the better buy.
Don't miss your CD's renewal window
Most banks give you a short grace period after a CD matures, often 7 to 10 days, to move the money without a penalty. After that it may renew automatically for another full term. Put the maturity date in your calendar, with a reminder a month ahead, so you have time to compare. The CD Renewal Check on the home page shows what's at stake for your own balance.
See what your old 401(k)s could pay you each month
Use the free calculator, or take the 2-minute plan check and get your Second Paycheck report. No cost, and nothing to sign.