What Is a Multi-Year Guaranteed Annuity (MYGA)? Definition and Benefits

A multi-year guaranteed annuity (MYGA) offers a predetermined and contractually guaranteed interest rate for a fixed term. It can be a strategic way to create an additional savings bucket for retirement. A MYGA can help you supplement your Social Security benefits or any tax-advantaged retirement accounts, allowing you to have a more secure retirement.

For guidance in building and maintaining a retirement plan, consult a financial advisor.

What Is a Multi-Year Guaranteed Annuity (MYGA)?

A multi-year guaranteed annuity is a type of fixed annuity. As the name suggests, fixed annuities like MYGAs offer a fixed interest rate, meaning the interest rate is locked in for a certain period of time.

The key difference between MYGAs and traditional fixed annuities is the length of time the rate is guaranteed. With a traditional fixed annuity, the guarantee may only last for part of your contracted term. For example, you might buy an annuity contract with a 10-year term, but your rate may only be guaranteed for the first five years. A MYGA, on the other hand, guarantees your rate for the entire contracted term, typically between two and 10 years.

These annuities are also different than the other main type of annuity: variable annuities. A variable annuity is much closer to an investment account, as you can invest the money you deposit in funds the annuity company offers. These funds typically have varying levels of risk, allowing the annuitant to choose where they feel most comfortable.

As you might imagine, an investment-based contract like a variable annuity holds much more risk than its fixed-rate counterparts, including the MYGA. This is the why many people opt for a MYGA over a variable annuity. If you want your annuity to supplement your existing retirement income, then the risk of a variable annuity may not be worth it for you, even if that variable annuity may offer potentially higher returns.

Benefits and Drawbacks of MYGAs

There are several reasons why you might prefer a multi-year guaranteed annuity over another type of annuity.

For one, since a MYGA offers a guaranteed interest rate for the entire contracted term, it’s generally a less risky investment. If you opt for a variable or indexed annuity, the rate of return is tied to stock market performance. While this means the reward potential is higher, so is the risk. Additionally, the interest you earn with a MYGA is tax-deferred. As such, you won’t owe taxes on growth until you begin taking distributions.

Another perk of a MYGA is that you can purchase one using either qualified or non-qualified funds. With a qualified annuity purchased through an IRA or another tax-advantaged account, you pay income tax on principal and interest when making withdrawals. With non-qualified annuities, only the interest is taxable.

A multi-year guaranteed annuity also offers great flexibility, allowing you to take penalty-free partial withdrawals each year. For example, if you need money to cover a large medical bill, you could pull it from your MYGA. This can be a better option than incurring IRA withdrawal penalties or interest from a 401(k) loan. Even with a regular CD, you still have to contend with early withdrawal penalties that require you to forfeit some of the interest earned.

A MYGA does come with its share of fees, but they can be less than other annuities. Generally, the rule of thumb for annuities is the less complicated they are, the fewer fees you pay.

MYGAs vs. CDs

Many people associate multi-year guaranteed annuities with certificates of deposit, or CDs, as they’re extremely similar.

A CD requires you to stash away your money for a specific period. Once the CD reaches its maturity date, you can renew it at the current interest rate, or you can withdraw your initial deposit, along with the interest earned.

You may also be able to renew a MYGA at the end of your contract, but it will likely be at a new interest rate. As with CD rates, you’ll be offered the current rate at time of renewal. This rate could be higher or lower than what you had before.

If you choose not to renew your MYGA with a new contract, you could instead withdraw the principal and interest. Your annuity company may allow a penalty-free window, during which you wouldn’t pay any surrender charges or other fees. Within that window, you could also transfer the money into a new, higher-yielding annuity using a 1035 exchange without triggering a tax penalty.

Despite this overlap, there are also several key differences between MYGAs vs. CDs worth noting when comparing the two.

MYGAs vs. CDs

	MYGA	CD
FDIC Insurance	No FDIC insurance	Typically FDIC-insured up to legal limits
Availability	Insurance company	Bank or broker
Early Withdrawal Penalty	Partial withdrawal permitted	Penalties typically apply
Interest Rates	More competitive	Less competitive
Fees	Generally higher	Generally lower
Taxable Interest	Not taxable	Taxable

What to Know Before You Purchase a MYGA

If you’re contemplating a MYGA for retirement, there are a few things to keep in mind:

Age. First, consider your age. MYGAs are typically more beneficial for people nearing retirement versus younger savers. If you’re still several decades away from retirement, you may find better returns from an IRA or your company’s 401(k) plan.
Purpose. Next, think about what you want an annuity to do for you. A MYGA may not be the right choice if you’re looking for an annuity product to create consistent income for retirement.
Returns. Third, consider the return potential. MYGAs offer more conservative returns. That could make it harder for them to keep pace with rising inflation. If you’re interested in an annuity and are comfortable trading a higher degree of risk for the chance for more growth on your investment, another type of annuity may be a better fit.
Insurer. You should also research the financial stability of the insurance company that sells the MYGA. Look for insurers with high ratings from independent rating agencies, as this indicates their ability to meet future obligations.
Withdrawals. Lastly, be sure you understand the withdrawal options and penalties associated with the MYGA. Some annuities offer penalty-free withdrawals under certain conditions. This can provide added flexibility.

How MYGAs Fit Into a Retirement Savings Strategy

A multi-year guaranteed annuity often sits between growth-oriented investments and income-focused products. Investors often use a MYGA to park money they do not want exposed to market swings but also do not need immediate access to. In that sense, a MYGA functions as a stability-focused allocation rather than a primary growth engine or a lifetime income source.

MYGAs are commonly categorized alongside assets such as CDs, money market funds and short-term bonds. Unlike market-based investments, the return is known upfront and does not change during the contract term. This makes MYGAs easier to coordinate with other retirement assets that fluctuate in value, such as 401(k)s or brokerage accounts, where balances rise and fall with market conditions.

From a planning perspective, many people pair MYGAs with accounts that serve different roles. For instance, they may use tax-advantaged retirement accounts for long-term growth, while leveraging a MYGA to hold funds they intend to use for future spending needs within a defined time window. This separation allows investors to align specific dollars with specific time horizons rather than treating all retirement assets the same way.

MYGAs can also sometimes come in handy when managing reinvestment risk. By locking in a rate for several years, the contract removes uncertainty around future interest rate changes for that portion of a portfolio. This can simplify planning for upcoming expenses or future income decisions, especially when combined with other assets that reset or reprice more frequently.

How MYGA Surrender Charges and Liquidity Windows Actually Work

Most MYGAs allow a penalty-free withdrawal each year, typically around 10% of the contract value, without triggering surrender charges. On a $100,000 MYGA, that means you could access roughly $10,000 a year without penalty, even mid-contract. Withdrawals beyond that annual allowance, however, are subject to surrender charges for the remainder of the term.

Surrender charges themselves typically follow a declining schedule tied to the length of the contract. A seven-year MYGA, for example, might carry a surrender charge starting around 7% in the first year. From there, it may decline by roughly one percentage point each subsequent year until it reaches zero at maturity. The exact schedule varies by insurer and product. But in general, the penalty for early withdrawal tends to shrink the closer the contract gets to its term end.

At the end of the contract term, most MYGAs offer a renewal window. This is often somewhere between 10 and 30 days, during which time it’s possible to withdraw the full principal and interest without surrender charges. You can also opt to renew the contract at the insurer’s current rate or transfer the funds into a different annuity product through a 1035 exchange without triggering a taxable event. Missing this window typically means the contract automatically renews at whatever rate the insurer is currently offering. Keep in mind this rate may be less favorable than those available elsewhere in the market at that time.

Some contracts also include exceptions that allow penalty-free withdrawals beyond the standard annual allowance under specific circumstances. This may include scenarios such as confinement to a nursing home or a terminal illness diagnosis. These provisions vary significantly by insurer, however. As such, it’s important to confirm them directly in the contract.

Bottom Line

You can use multi-year guaranteed annuities as a substitute for CDs, or you can invest in them alongside one. They offer a potentially safer way to invest for the future while allowing you to benefit from favorable tax treatment when you begin withdrawals. However, a strong retirement plan needs to include more than just an annuity. It’s critical that you diversify your assets between tax-advantaged accounts, like traditional and Roth IRAs, while also working to maximize Social Security benefits.

Retirement Planning Tips

Consider talking to a financial advisor about whether an annuity is right for you. They can guide you through the basics of how annuities work and what purpose they could serve in helping you reach your financial goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area. From there, you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
When comparing annuities, be sure to check the fees and the rating of the insurance company selling it. Some annuities can come with expensive hidden fees, which take away from your returns. It’s also important to work with a reputable insurance company. This reduces the risk of the insurer going out of business and not being able to pay you once you’re able to withdraw from the annuity.