MYGA vs. CD: What Actually Matters?

What each product promises

A bank CD typically states an interest rate for a term. A multi-year guaranteed annuity (MYGA) is a fixed annuity issued by an insurance company with a contractual credited rate for a set guarantee period. Compare the actual contract, not just a headline percentage.

What protects your money

Eligible bank CDs are generally FDIC insured up to applicable limits. Annuities are not FDIC-insured or bank deposits. Their guarantees rely on the financial strength and claims-paying ability of the issuing insurer. State guaranty associations may provide limited protections; they are not a substitute for evaluating the issuer.

What if you need cash sooner?

CDs often impose penalties for early withdrawal. MYGAs commonly have surrender periods and charges, and some contain market value adjustments. Ask what penalty-free withdrawals are permitted and what a withdrawal would cost in year one, year three and near maturity.

How taxes can differ

Interest earned on a taxable bank CD is generally taxable each year even if left on deposit. Earnings inside a nonqualified deferred annuity generally grow tax-deferred until withdrawn, with distributions subject to contract-specific tax rules. An early taxable annuity withdrawal can trigger an additional federal tax before age 59½ unless an exception applies. Qualified retirement accounts follow different rules.

Five questions to bring to a comparison

What is the credited rate and for how long? What are the surrender charges and renewal options? What portion is accessible without charge? Who stands behind the guarantee? What will taxes look like for my circumstances?

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General educational information, not individualized tax, legal or financial advice. Product availability and contract terms vary by state, carrier and applicant.