MYGAs vs CDs: How Multi-Year Guaranteed Annuities Compare for US Savers (Safety, Taxes, Surrender Charges)

Updated October 7, 2026. Educational content for US savers, not investment, tax, or insurance advice. Annuity rates, surrender schedules, and state guaranty limits vary by company and state, so read the contract and disclosure before you buy.

If you have been shopping for a safe place to park savings for three to five years, you have probably seen two offers side by side: a bank certificate of deposit and something called a multi-year guaranteed annuity, or MYGA. Both promise a fixed rate for a fixed number of years. The MYGA sometimes advertises a slightly higher yield, and an insurance agent may describe it as "a CD from an insurance company."

That shorthand is useful, but it hides real differences in who backs your money, how it is taxed, and what it costs to get out early. This guide explains how each one works, where a MYGA can make sense, and the questions to ask before you lock money away.

What a bank CD is

A certificate of deposit is a time deposit at a bank or credit union. You agree to leave the money for a set term, and the bank pays a fixed rate.

• Backing: CDs at FDIC-insured banks are covered up to $250,000 per depositor, per insured bank, per ownership category. Credit union share certificates get the same level of coverage from the NCUA. That protection is backed by the federal government.
• Taxes: Interest is taxable in the year it is credited, even if you leave it in the CD. Your bank sends a Form 1099-INT each year (outside of an IRA).
• Early exit: Breaking a CD early usually costs an early withdrawal penalty, often a few months of interest.
• Terms: Anywhere from a few months to five years or more.

What a MYGA is

A multi-year guaranteed annuity is a contract with a life insurance company. You pay a lump sum, and the insurer guarantees a fixed interest rate for a set period, commonly three, five, seven, or ten years. It is a type of fixed deferred annuity.

• Backing: The guarantee comes from the insurance company's ability to pay, not from the FDIC. If an insurer fails, each state has a life and health insurance guaranty association that provides a safety net up to a state-set limit. For annuities, many states cover up to $250,000 in present value per person per insurer, but the limit and rules vary by state, and these associations are not federal insurance.
• Taxes: Interest grows tax-deferred. You generally owe ordinary income tax on the earnings only when you withdraw them. Withdrawals of earnings before age 59½ can also trigger a 10% IRS additional tax, with some exceptions.
• Early exit: Most MYGAs have a surrender charge schedule that declines over the term, for example starting around 6% to 9% in year one and stepping down each year. Many contracts allow a penalty-free withdrawal each year, often up to 10% of the value or the interest earned.
• Market value adjustment: Some MYGAs add an MVA, which can raise or lower the amount you get if you surrender early, depending on how interest rates have moved.

MYGA vs CD at a glance

Feature	Bank CD	MYGA
Who issues it	Bank or credit union	Life insurance company
Protection	FDIC or NCUA, up to $250,000 per depositor, per institution, per ownership category	Insurer's financial strength, plus state guaranty association up to a state-set limit
Taxes on interest	Taxed every year as earned	Tax-deferred until withdrawn
Early access	Early withdrawal penalty, often a few months of interest	Surrender charges for years, possible MVA, often 10% free withdrawals
Before age 59½	No extra IRS penalty	10% additional tax on earnings may apply
Typical terms	3 months to 5+ years	2 to 10 years
At maturity	Payout or auto-renewal	Walk away, renew, annuitize, or do a 1035 exchange

Where a MYGA can make sense

A MYGA is not automatically better or worse than a CD. It tends to fit a specific kind of saver:

• You are 59½ or older, or close to it. That removes the 10% IRS additional tax on earnings, which is one of the biggest drawbacks for younger savers.
• You are in a high tax bracket now and expect a lower one later. Deferring interest income until retirement, when your bracket may drop, can make the after-tax result better than a CD paying the same rate.
• You want to avoid adding taxable interest each year. Because MYGA interest is deferred, it does not show up on your return annually. For some retirees that can help with things tied to income, such as how much of your Social Security is taxable or Medicare IRMAA surcharges. Check with a tax pro for your own numbers.
• You are confident you will not need the money for the full term. Surrender charges are the price of the higher guaranteed rate, so the money should be truly long-term.

Where a CD is usually the better fit

• You are under 59½ and might want the earnings before then.
• You want federal deposit insurance and the simplest possible protection.
• The money might be needed in a pinch. A CD penalty of a few months' interest is usually far cheaper than a multi-year annuity surrender charge.
• Your savings are inside an IRA or 401(k) already. Tax deferral is the main MYGA perk, and a retirement account already gives you that, so the comparison comes down mostly to rate, safety, and flexibility.
• You want a shorter term. CDs come in short terms, while most MYGAs start at two or three years.

How to compare the actual offers

Advertised yields are not always apples to apples. Before you choose, line up these details:

1. Rate and how it is quoted. CDs use APY. Annuities usually quote an annual effective rate. Confirm whether the MYGA rate is guaranteed for the full term or only the first year. A true MYGA guarantees it for the whole term.
2. The insurer's financial strength. Look up ratings from agencies such as AM Best, S&P, Moody's, or Fitch. Higher-yield contracts often come from smaller or lower-rated insurers.
3. Your state's guaranty limit. Visit your state's life and health insurance guaranty association to see the annuity limit. If you have more than that, consider splitting money across different insurers.
4. Surrender schedule and free withdrawals. Read the year-by-year percentage and whether there is a market value adjustment.
5. What happens at the end. Know the window to withdraw or move the money, often about 30 days, before the contract renews at a new rate and possibly a new surrender period.
6. Death benefit. Many MYGAs waive surrender charges at death and pay beneficiaries directly, which can skip probate. Confirm how your beneficiaries would be taxed on the deferred interest.

A simple example

Imagine a 62-year-old with $100,000 she will not touch for five years. A five-year CD and a five-year MYGA pay similar rates. With the CD, she pays tax on the interest every April. With the MYGA, the interest compounds without annual tax, and she pays ordinary income tax only when she withdraws, perhaps after retiring into a lower bracket. Because she is over 59½, there is no 10% additional tax. If the insurer is highly rated and her balance stays under her state's guaranty limit, the MYGA may give her a better after-tax result.

Now picture a 45-year-old saving for a home down payment in three years. Any MYGA earnings withdrawn would face the 10% additional tax, and surrender charges could bite if the timeline shifts. For that saver, a CD, a CD ladder, or a high-yield savings account is usually the cleaner choice.

Red flags to watch for

• A "bonus" rate that only applies in year one.
• A surrender period much longer than the rate guarantee.
• Pressure to move money out of an existing annuity that is still in its own surrender period.
• Any pitch that calls an annuity "FDIC insured." It is not, even when sold at a bank branch.

The bottom line

CDs and MYGAs both lock in a fixed rate, but they are built for different savers. A CD gives you federal deposit insurance, short terms, and a modest penalty if plans change. A MYGA trades flexibility for tax-deferred growth and sometimes a higher guaranteed rate, backed by an insurance company and your state's guaranty association. If you are near or past 59½, will not need the money for the full term, and pick a strong insurer within your state's limits, a MYGA can be a smart complement to your CDs. If you are younger or want easy access, stick with CDs and high-yield savings.