When considering predictable, fixed-rate options for retirement savings, many clients ask:
What's the difference between a traditional fixed annuity and a MYGA?
Both offer principal protection and a guaranteed interest rate, but they differ in how rates are set and how much flexibility they offer.
Traditional fixed annuity: year-to-year flexibility with guarantees
A traditional fixed annuity typically sets its interest rate one year at a time, along with a minimum guaranteed rate that applies for the life of the contract. Many of these contracts allow ongoing premium contributions, which can suit people who are still adding to their savings.
Pros:
- The annual rate reset gives you the chance to benefit if interest rates rise
- A contractual minimum guaranteed rate for the life of the contract
- Some contracts allow additional contributions over time
- Some offer a first-year bonus rate
Cons:
- Renewal rates may drop when interest rates fall
- Fewer products may be available when rates are low
- First-year bonuses usually enhance only the first year's return
- Withdrawals beyond any free allowance during the surrender period may incur surrender charges
This type of annuity may suit people who want annual rate flexibility along with principal protection.
MYGA: a fixed-term, tax-deferred alternative to CDs
A MYGA (Multi-Year Guaranteed Annuity), also called a fixed-rate annuity, works much like a certificate of deposit (CD), with one key difference: tax deferral.
Key difference from CDs:
CD interest is generally taxed each year. MYGA interest is tax-deferred until you withdraw it, so your earnings can compound without annual taxes.
Pros:
- Lock in a fixed interest rate for a set term, typically 3 to 10 years
- Interest grows tax-deferred
- Rates may be higher than bank CDs of similar length
- Many contracts allow penalty-free withdrawals of up to 10% of the account value each year
- Typically no annual fees; the insurance company pays the agent's commission, which is built into the product's pricing rather than deducted from your account
Cons:
- Withdrawals beyond the free allowance during the term may incur surrender charges, and some contracts include a market value adjustment
- Withdrawals of earnings before age 59½ may be subject to a 10% federal tax penalty
- Contracts often renew automatically unless you notify the insurance company before the term ends
- Usually requires a single lump-sum premium
MYGAs may suit people who want CD-like predictability along with tax deferral and a fixed rate for a set period.
Choosing between the two
Feature | Traditional Fixed Annuity | MYGA (Fixed-Rate Annuity) |
Rate guarantee period | 1 year (resets annually) | 3–10 years (set by contract) |
Taxation | Tax-deferred | Tax-deferred |
Contributions | Flexible (often recurring) | Typically single premium |
Withdrawal flexibility | Varies by contract | Often 10% penalty-free per year |
Interest rate behavior | Can rise or fall each year | Locked in for the full term |
Fees | No annual fees (surrender charges may apply) | No annual fees (surrender charges may apply) |
Renewal | Rate resets annually | Watch the term end date to avoid automatic renewal |
Important to know
Unlike bank CDs, annuities are not FDIC-insured. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Annuities are long-term products, and surrender charges may apply to early withdrawals.
Next step: explore current MYGA rates
Thinking about locking in a rate? You can compare available options here: Top Annuity Rates
Final thought
Traditional fixed annuities and MYGAs can both play a role in a fixed-income strategy, but they serve different purposes. Whether you value flexibility, tax deferral or rate certainty, the right choice depends on your time horizon, liquidity needs and overall retirement plan.
Want help deciding which option fits your goals? Let's connect.