Multi-Year Guaranteed Annuities (MYGAs) Vs. CDs

When you’re searching for safety and stability in a volatile market, two financial products stand out: Certificates of deposit (CDs) and multi-year guaranteed annuities (MYGAs). Both products are designed for risk-averse savers looking for guaranteed returns, but under the hood, these products function differently, especially when it comes to withdrawals and taxes.

Whether you’re looking to park short-term cash or seeking a tax-deferred income stream in retirement, it’s important to understand the differences between CDs and MYGAs so you can make the best decision for your financial goals.

Here’s a breakdown of how CDs and MYGAs work, where they overlap and what sets them apart.

CDs and MYGAs: How they work

CDs

Certificates of deposit are low-risk savings products sold by banks and credit unions. You deposit a lump sum for a set term — anywhere from three months to five years — and in return, the bank pays you a fixed interest rate. At the end of the term (called maturity), you get your principal back plus the interest earned.

CDs are considered one of the safest investments out there because they don’t expose you to the stock market and they’re FDIC-insured up to $250,000 per depositor, per bank.

You’ll typically pay a penalty if you pull your money out early, usually forfeiting some or all of the interest. And you’ll owe taxes annually on any interest earned, even if you leave the money in the account.

MYGA

A multi-year guaranteed annuity, or MYGA, is basically the insurance industry equivalent to a CD. You invest a lump sum with an insurance company, and in exchange, they guarantee a fixed interest rate for a set number of years — usually two to 10 years.

MYGAs are considered a type of fixed annuity, and they’re usually designed for retirement savings. However, MYGAs offer one major advantage over traditional fixed annuities — they lock in a guaranteed interest rate for the entire contract instead of only the first few years. That predictability beats out the fluctuating interest rate you’d get from most savings accounts.

Unlike CDs, MYGA interest grows tax-deferred until you withdraw it, which can be a huge advantage if you’re in a high tax bracket or want to delay income until retirement.

CDs vs. MYGAs: How they’re similar

MYGAs and CDs tend to attract the same type of person: Someone who wants a guaranteed return without market risk. If you get spooked by swings in the stock market or simply want to earn a guaranteed interest rate, both CDs and MYGAs can give you peace of mind.

Here’s what CDs and MYGAs have in common.

• Guaranteed interest rates: Your rate is locked in for the entire term.
• Fixed time periods: You agree to keep your money in the account or contract for a set term.
• Principal protection: You won’t lose your initial deposit unless the bank or insurer fails (and even then, both have safeguards in place).
• Early withdrawal penalties: Getting your money out early can cost you, depending on the product’s terms.
• Low or no fees. Most don’t charge upfront or ongoing fees, though some MYGAs may have surrender charges.

Differences between CDs and MYGAs

While they might look similar on the surface, MYGAs and CDs diverge in a few key ways. These differences can impact your taxes, your liquidity, your returns and whether the product even makes sense for your financial goals.

Rate of return

One of the most noticeable differences between CDs and MYGAs are interest rates.

MYGAs usually offer higher yields than CDs for the same term length. For example, in May 2025, a typical CD rate for a three-year term was 4 percent while a typical MYGA rate for a three-year term was about 6 percent.

That’s because insurance companies, which issue MYGAs, are able to invest in longer-term assets and pass along some of those returns to you. So a higher return doesn’t mean higher risk — the rate is still guaranteed. However, the trade-off is you’re giving up some liquidity and adding a layer of complexity — annuities tend to have more restrictions than CDs.

Banks, on the other hand, tend to keep CD rates relatively low, especially at traditional banks. Online banks typically offer better rates, but MYGAs still tend to come out on top if you’re strictly focused on yield. Just make sure you don’t need that cash before the contract ends.

Safety and principal protection

CDs are federally insured up to $250,000 per depositor, per bank, by the FDIC (or NCUA for credit unions). That means even if the bank fails, your money is protected by the federal government.

MYGAs, on the other hand, aren’t backed by a federal agency. Instead, they’re backed by the claims-paying ability of the insurance company that issues them. If the company goes under, your recovery depends on the rules of your state guaranty association, which typically covers somewhere between $100,000 and $300,000.

That’s why it’s crucial to check the financial strength ratings of any insurer you’re considering before buying a MYGA because that backing matters a lot more than with CDs. So, if you go the MYGA route, stick to annuity companies with an “A” rating or better.

Penalties for early withdrawals

Liquidity is another major area where the two products diverge — and an important factor to consider. Neither product is designed for easy access, but CDs tend to offer a bit more flexibility.

CDs generally have lighter penalties for early withdrawals — usually only a few months’ worth of interest. Some banks even offer no-penalty CDs, although those come with lower interest rates.

With MYGAs, the penalties — called surrender charges — are more aggressive. These charges are highest in the early years of the contract and gradually decrease over time. Some contracts allow small annual withdrawals without penalty, but it depends on the fine print. On top of that, if you’re under 59½, the IRS may tack on an additional 10 percent tax penalty, similar to early withdrawals from retirement accounts. That’s why it’s always important to check the insurer’s surrender charge schedule before you commit.

In short, CDs offer more flexibility if there’s a chance you’ll need your money early, while MYGAs require more of a set-it-and-forget-it mindset.

Tax treatment

The tax treatment of each product also plays a role in deciding which one makes sense for you.

CD interest is taxed each year, regardless of whether you withdraw the money or not. That can eat into your earnings, especially if you’re in a high tax bracket.

MYGAs, on the other hand, allow your interest to grow tax-deferred until you begin making withdrawals. This can make a big difference over time, especially for people using MYGAs as part of a retirement income strategy. The ability to delay taxes until you’re in a potentially lower bracket later gives MYGAs a powerful long-term advantage.

So if you’re saving for retirement and don’t need the money for years, the tax deferral of a MYGA gives it an edge over bank CDs. For short-term goals though, a CD’s tax bite might not matter as much.

CD vs. MYGA: Which one is right for you?

Making the decision between a CD or a MYGA ultimately comes down to what you’re trying to do with your money. Both have a place in a conservative portfolio.

If you want a safe place to stash emergency cash or save for something in the next couple of years, a CD is the way to go. But if you’re thinking long term — especially for retirement — MYGAs can offer a higher return and more tax benefits.

A CD may be right if:

• You want FDIC-backed protection.
• You’re saving for a short-term goal (less than five years).
• You value simplicity and want to keep your taxes straightforward.
• You’re OK with slightly lower returns in exchange for a bit more flexibility.

A MYGA may be right if:

• You’re building retirement savings and want tax-deferred growth.
• You can leave the money alone for the full term.
• You want a predictable return that beats most CDs.
• You’re in a high tax bracket now but expect to be in a lower one later.

If you’re unsure which product is right for you, a financial advisor (not an insurance agent or financial representative trying to sell you a product) can help you run the numbers.

Bottom line

CDs and MYGAs both offer guaranteed returns, but they deliver them in different ways. CDs are bank products designed for short-term savers who want government-backed safety. MYGAs are annuities that offer higher returns and tax-deferred growth, but they come with stricter rules and rely on the insurer’s financial strength.

Whichever product you choose, make sure you don’t get stuck in something you don’t understand. Always read the fine print, and don’t let the word “guaranteed” lull you into skipping over the details. Your future self will thank you.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.