How Are MYGAs Different From a CD?

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Written by Hersh Stern Updated September 12, 2025

If you are looking for an investment vehicle that grows your money at a guaranteed interest rate, chances are you’ve come across both Certificates of Deposit (CDs) as well as Multi-Year Guarantee Annuities (MYGAs). You may be wondering what vehicle is best for you. We’re going to break down the pros and cons of each to help you decide which will work best for you.

How do MYGAs and CDs work?

With both a MYGA and a CD, you get guaranteed growth for a specified number of years. The interest rate is essentially what you are purchasing, and comparing interest rates is how many people decide which product to buy.

While these two products are similar, they have key differences which we will outline below. But before we do that, let’s get into some key terms:

  • Term — this is the amount of time that the CD or MYGA rate lasts
  • Deposit — the amount of money you contribute to a CD
  • Premium — the amount of money you contribute to a MYGA
  • Rate — the interest rate that is guaranteed for the term

Who issues MYGAs and CDs?

One of the key differences between a MYGA and CD is who issues it. Typically, a bank or credit union issues a CD while an insurance company issues a MYGA. As a result, CDs are typically covered by FDIC insurance (so long as the bank is a participating member) and MYGAs are not. However, you may have some coverage with your MYGA through State Guaranty Associations.

The difference of who issues the product also impacts how you purchase each product. With a CD, you can purchase the product either directly through the bank or in some cases buy brokered CDs through a brokerage (e.g. Fidelity, Vanguard, etc).

When you purchase a MYGA, you must apply for the annuity with the help of an insurance agent. You cannot purchase a MYGA directly from the insurance company.

What terms are available for MYGAs and CDs?

Generally speaking, CDs have shorter terms available, anywhere from 3 months to 5 years. MYGAs tend to have longer terms lasting anywhere from 2 to 10 years. So if you are looking for shorter terms, you may find that a CD better meets your needs, while a MYGA may be more appropriate if you are seeking a product that lasts for longer periods of time.

There is overlap however, as both MYGAs and CDs offer terms lasting between 2 and 5 years. So if you are looking to grow your money in that timeframe, how would you decide which to go with? For many people, finding the best rate of return is the top priority.

How do MYGA and CD rates compare?

If trying to decide between buying a MYGA or CD, chances are you are comparing their interest rates. When you compare top rates, MYGAs tend to have higher rates of return for the same terms.

The reason that MYGAs tend to have higher rates of return is that they typically also have higher surrender penalties, and the MYGAs with the highest rates also tend to have Market Value Adjustments. Surrender penalties and Market Value Adjustments only apply if you try to remove your funds early from the annuity. So if you are looking for the highest rate of return and are considering a MYGA, just make sure you are comfortable with your money being tied up for the full term of the annuity.

On the other hand, CDs tend to have lower penalties for surrendering the CD early. It is typical that you would forfeit your earned interest for a period of time (such as for that year). So if you think you may have to remove the money early from your investment, a CD may be a better option than a MYGA. That being said, some CDs do have harsher penalties that would result in you losing some of your initial deposit, so take care in understanding the terms before buying a CD.

Can I make periodic withdrawals from a CD or MYGA?

In many cases the answer to this is yes! Many MYGAs have provisions for some discretionary withdrawals, such as 10% of the prior year end value or interest withdrawals. CDs may also allow for discretionary withdrawals, but this too depends on the CD that you are purchasing.

If you are considering purchasing a MYGA or CD with qualified money (such as a Traditional IRA), make sure that you are able to make withdrawals to meet your requirement minimum distributions (RMDs) if you are old enough that they are required.

Are there tax advantages to a CD or MYGA?

In the area of taxation, MYGAs have the potential to give you a big tax advantage, but you have to understand how taxation works with MYGAs and some of the potential drawbacks. Below we’ll discuss possible tax implications for qualified (e.g. IRA) and non-qualified (e.g. savings) funds.

Non-Qualified Funds (e.g. Regular Savings)

MYGAs grow tax-deferred even in non-qualified accounts (e.g. checking/savings). This means that you do not have to claim your earnings each year from your MYGA and report it on your taxes. With CDs, you will have to claim your earnings each year you have the CD even for non-qualified funds.

While the tax-deferral of a MYGA can be a big benefit to you, you also need to understand the possible downsides of this tax-deferral. Because MYGAs have this tax preferred treatment, you must be over 59½ to be able to remove your money from a MYGA without penalty. If you remove your money prior to age 59½, your interest will have a 10% penalty applied to it. If you are over age 59½ when your annuity term ends, you can take your money out penalty free, though you will have to claim your earnings on your income tax for that year.

If you are under age 59½, there are still some ways to avoid getting the 10% penalty at the end of your annuity’s term. One way is to do a 1035 exchange into another tax-deferred annuity (such as another MYGA), which will keep the tax-deferral going and help you avoid any early withdrawal penalties. You can also allow your MYGA to automatically renew (if it has this feature) which will also keep the tax-deferral going and avoid any penalties. And yet another option is to use a SEPP to distribute your MYGA to you over your lifetime, which can be accomplished by performing a 1035 exchange of your MYGA into an Immediate Annuity.

Qualified Funds (e.g. Traditional IRA)

If you are purchasing a MYGA or CD within a qualified account, such as a Traditional IRA, your account is already tax deferred and you get no additional benefits from a MYGA.

What happens at the end of the term?

You are probably wondering what happens at the end of the term for a MYGA or CD. For both MYGAs and CDs, the answer to this depends entirely on the product that you purchase. At the end of the term your MYGA or CD may:

Automatically renew

This typically happens after a brief window (normally 30 days for a MYGA, and shorter for a CD) in which you are allowed to move the money anywhere without any penalties from the issuer. If you are under 59½, your MYGA may still have early withdrawal penalties. If your MYGA or CD automatically renews, it will renew at a rate set by the issuer at that time.

If your MYGA or CD automatically renews, it is important that you keep track of this grace period where you are allowed to move the money without penalty. If you miss the window, your money may be tied up for another full term!

Go into a Holding Account

Some insurance companies and banks will not automatically renew your MYGA or CD. Instead, they will place your money into a holding account, which can have a variable interest rate (or no interest) until you direct them where to send your funds.

If your money goes into a holding account, make sure you have a plan for what to do with your money next, especially if it is in a low or no interest holding account.

Which is best for me, a CD or MYGA?

While it would be nice to have a blanket answer to this question, your individual needs are going to drive which investment vehicle is best for your situation.

Consider a MYGA if you are:
  • Looking for the highest guaranteed interest rate possible
  • Looking for a longer term investment (2 years or more)
  • Are confident you will not need to remove more money than allowed under the contract’s withdrawal provisions
  • Are looking for tax preferred treatment on your money and are over 59½ (or plan to keep your money in a tax-deferred annuity until you are over 59½)
  • Want a low-risk investment vehicle that still provides competitive yields
Consider a CD of you are:
  • Not sure if you want to keep your money invested for the full term (though you should still be aware of the possible penalties for early withdrawal)
  • Don’t need tax preferred treatment and/or need to move your money to a different account before you reach 59½
  • Looking for a shorter term investment (less than 2 years)
  • Want a more flexible low risk investment vehicle, and are willing to sacrifice some earnings potential for additional flexibility
  • Need FDIC insurance on your money
  • Want to be able to make periodic withdrawals without penalties
  • Are under age 59½ and want to avoid the 10% early withdrawal penalty

Can someone help me navigate the world of MYGAs?

Absolutely. You can call our annuity experts at (866) 866-1999, and they will walk you through the different MYGAs available to you. If you have specific needs or requirements, our experts can help you find the perfect match at the most competitive rate. And if you come to our experts with a CD you are interested in, they can help you compare how the features of the MYGA differ from that of a CD. Even if you end up buying a CD, give us a call. We’re happy to talk through your options with you so that you are certain you are making the best decision.

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