Multi-Year Guaranteed Annuities (MYGAs) vs. Certificates of Deposit (CDs)

Key Takeaways

• MYGAs are insurance products designed for retirement income planning; CDs are bank savings products for short to medium-term goals.
• MYGAs typically offer higher interest rates and tax-deferred growth, while CD earnings are taxed annually.
• CDs are FDIC or NCUA insured up to $250,000; MYGAs are backed by the claims-paying ability of the issuing insurer and covered by state guaranty associations.
• Only MYGAs can be converted into a guaranteed lifetime income stream at retirement.
• CDs are generally better for shorter-term savings goals; MYGAs are better suited for building retirement income over the medium to long term.

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

A MYGA is a type of fixed deferred annuity issued by a life insurance company. You pay a single premium, and in return, the insurer credits your contract with a guaranteed fixed interest rate for a set term, typically ranging from three to ten years. Because the rate is locked in at the start, your growth is predictable throughout the accumulation period.

You will need to read the MYGA contract to know the exact terms, but typically, at the end of the rate guarantee term, you will have several options. You can withdraw your money, renew into a new term, transfer the full balance to another annuity through a 1035 exchange and continue receiving tax-deferred growth, or annuitize the contract and begin receiving periodic income payments. Annuitization is the feature that makes MYGAs distinct from virtually every other financial product: it gives you the option of converting your accumulated balance into a guaranteed stream of income that can last for the rest of your life.

MYGAs are insurance contracts, not bank or investment products. That distinction matters for how they are regulated, how they are protected, and how they are taxed.

How Does a MYGA Work?

When you purchase a MYGA, your premium enters the accumulation phase. Interest accrues on a tax-deferred basis, meaning you do not owe income tax on the earnings until you take a distribution. At the end of the accumulation period, you can annuitize the contract and enter the payout phase, receiving regular income payments for a period you choose or for the remainder of your life.

Unlike variable or fixed indexed annuities, a MYGA does not tie its crediting rate to stock market performance. The rate is fixed from the start, making it one of the most straightforward annuity structures available.

What Is a Certificate of Deposit (CD)?

A CD is a savings product issued by a bank, credit union, or other financial institution. You deposit a lump sum for a fixed term, typically ranging from a few months to five years, though terms of up to ten years exist. In exchange for leaving the money untouched, the institution pays you a fixed interest rate that is generally higher than a standard savings account.

At maturity, you receive your original principal plus the interest you have earned. If you withdraw before the term ends, you will typically face a penalty equal to a portion of the interest. CDs are not retirement products; they are general savings tools with no restriction on when you can access your funds based on age.

MYGA vs. CD: Side-by-Side Comparison

Different Purposes

The most fundamental difference between MYGAs and CDs is what they are designed to do.

MYGAs are retirement products. They are built to help you accumulate assets on a tax-deferred basis over the medium to long term, then convert those assets into predictable income in retirement. Because they are structured as insurance contracts, they can offer something no bank product can: a guaranteed stream of income you cannot outlive.

CDs are savings products. They give your money a place to grow at a competitive fixed rate for a defined period, and then return your principal plus interest. They impose no age-based restrictions and carry no retirement-specific features. A CD is a useful tool for goals that have a defined time horizon, such as saving toward a large purchase or keeping a portion of an emergency fund in a higher-yielding account.

Institutional Differences

MYGAs are issued by life insurance companies, which are regulated by state insurance departments. CDs are issued by banks and credit unions, which are regulated by federal banking regulators.

This distinction shapes everything from how each product is protected to how withdrawals are taxed. When you purchase a MYGA, you are entering into an insurance contract with a specific carrier. The strength of that contract is tied to the financial strength of the issuing insurer, which is why it is important to review the insurer's ratings before purchasing. Canvas Annuity policies are issued by Puritan Life Insurance Company of America, which has a long track record of financial stability.

How Each Product Is Protected

Because MYGAs and CDs are issued by different types of institutions, they are protected through different mechanisms.

CDs held at FDIC-insured banks are covered for up to $250,000 per depositor, per institution, per account category. CDs issued by NCUA-insured credit unions carry the same limit. This federal backing is one of the strongest protections available for a financial product.

MYGAs are not FDIC or NCUA insured. Instead, they are backed by the claims-paying ability of the issuing insurance company. In addition, each state maintains a guaranty association that provides a safety net for policyholders if an insurer becomes insolvent. Coverage limits vary by state, so it is worth checking the limits in your state before purchasing. Taken together, the financial strength of a well-rated insurer and the coverage provided by the state guaranty association give MYGA holders meaningful protections, though they work differently from deposit insurance.

Payout Structure

When a CD matures, you receive your principal plus interest in a lump sum. You can then spend it, reinvest it, or roll it into a new CD. The transaction is straightforward and complete.

When a MYGA reaches the end of its term, you have a broader set of choices. You can take the full balance as a lump sum, renew into a new MYGA contract, roll the balance into a different annuity through a 1035 exchange, or annuitize the contract. Note, the end of the rate guarantee term is not typically the same as the maturity date of the contract. Even after the rate guarantee term, most MYGA contracts will continue to earn money at a fixed rate until maturity. Annuitization converts your accumulated balance into periodic payments, and depending on the payout option you select, those payments can continue for a fixed number of years or for as long as you live. This ability to convert savings into guaranteed lifetime income is a feature unique to annuity products.

Interest Rates

Both MYGAs and CDs guarantee a fixed interest rate for the duration of the contract. Neither product exposes you to market risk. However, MYGA rates have generally been higher than CD rates for comparable terms, and that gap can be meaningful over a multi-year accumulation period.

Rates on both products shift based on the broader interest rate environment. For the most current Canvas Annuity rates, visit the Canvas product page, which is updated on an ongoing basis.

Term Length

CDs are available in a wide range of terms, from as short as 28 days to as long as 10 years. The shortest-term options give you flexibility; longer terms generally carry higher rates. This makes CDs well-suited for goals with known, near-term time horizons.

MYGAs typically start at three-year terms and go up to ten years. They are designed for the medium to long term. If you need access to your money within the next one to two years, a CD may be a better fit. If you are building toward retirement over several years and want a competitive, guaranteed rate with a tax deferral benefit, a MYGA may be the stronger choice.

Liquidity and Early Withdrawals

Both products are designed to discourage early withdrawal, and both impose financial consequences if you access your money before the term ends.

With a CD, early withdrawal typically results in a penalty equal to a fixed number of months of interest. The exact penalty depends on the institution and the term, so it is always worth reviewing the specific terms before opening an account.

With a MYGA, early withdrawal may trigger a surrender charge set by the insurance company. The amount declines over the surrender period, which varies by contract. In addition to any surrender charge, withdrawals from a MYGA before age 59 and a half may also be subject to a 10% IRS early distribution penalty on any earnings, along with ordinary income tax. This same tax penalty does not apply to CDs unless they are held inside a qualified retirement account.

Some MYGA contracts, including certain Canvas products, allow you to withdraw a portion of your account value each year without incurring surrender charges. Always review the specific terms of any contract you are considering.

Taxation

Taxation is one of the clearest advantages MYGAs hold over CDs for retirement-focused savers.

Interest earned inside a MYGA grows on a tax-deferred basis. You do not owe income tax on the earnings until you take a distribution, which allows your interest to compound without an annual tax drag. When you do withdraw, earnings are taxed at your ordinary income tax rate in the year you receive them. Because most people are in a lower tax bracket in retirement than during their working years, tax deferral often results in a meaningfully lower overall tax burden.

CD interest does not receive this treatment. Earnings on a CD are taxed as ordinary income in the year they are credited, even if you do not withdraw the funds. This annual tax reduces the amount available to compound in subsequent years.

The one exception is a CD held inside a qualified retirement account such as an IRA. In that case, the CD's earnings benefit from the tax treatment of the retirement account. However, holding a CD inside an IRA also subjects it to the IRA's withdrawal rules and potential early distribution penalties.

Fees and Contract Costs

CDs generally do not carry annual fees or account maintenance charges. The only direct cost is the early withdrawal penalty if you access the funds before maturity.

Fixed annuity contracts, including MYGAs, may carry fees depending on the product and issuer. Some Canvas Annuity products carry no account fees to open or maintain the contract. Review the fee schedule for any specific product before purchasing.

What Happens When a MYGA Term Ends?

The end of a MYGA term is a decision point that does not exist with a CD. When a CD reaches the end of it’s term, it matures, and you simply receive your balance. When a MYGA reaches the end of its term, you typically have a window of time, often called a free-look or renewal window, during which you can take one of several actions.

• Renew the contract for a new term with a potentially updated rate.
• Transfer the balance to a new annuity contract with the same company or a different company through a 1035 exchange, which preserves the tax-deferred status of your earnings.
• Annuitize the contract and begin receiving periodic income payments.
• Take the full balance as a lump sum distribution, at which point earnings become taxable in that year.

Planning for this decision point in advance is an important part of incorporating a MYGA into a broader retirement income strategy.

Which One Is Right for You?

Consider a CD if:

• You have a short to medium-term savings goal with a known end date.
• You want FDIC or NCUA-insured protection and the straightforward structure of a bank product.
• You may need access to the funds before retirement age and want to avoid IRS early distribution penalties.
• You are saving for a specific purpose, such as a home purchase or a large planned expense, rather than building retirement income.

Consider a MYGA if:

• You are planning for retirement and want a competitive, guaranteed rate with tax-deferred growth.
• You want the option to convert your savings into a lifetime income stream at retirement.
• You are in a higher tax bracket now and expect to be in a lower bracket when you begin taking distributions.
• You are looking for a lower-risk alternative to market-linked products within your retirement portfolio.
• You want to maximize the portion of your savings that compounds without an annual tax reduction.

MYGAs Can Help You Build Predictable Retirement Income

If you think a MYGA could be a fit for your retirement strategy, Canvas Annuity offers products with zero account fees and some of the most competitive rates available through a straightforward online application process.

Frequently Asked Questions

Can I hold a MYGA inside an IRA?

Yes. MYGAs can be held inside a traditional IRA or a Roth IRA. If held inside a traditional IRA, the tax-deferred treatment of the annuity is effectively redundant because the IRA already provides tax deferral. However, holding a MYGA inside an IRA can still be beneficial for the annuity's other features, particularly the option to annuitize and receive guaranteed lifetime income. Contributions and distributions are subject to the IRA's own rules.

Are MYGA rates and CD rates taxed the same way?

No. Interest earned inside a MYGA is tax-deferred until distribution, while CD interest is taxed as ordinary income in the year it is credited to your account. This difference can have a meaningful impact on long-term accumulation, particularly for savers in higher tax brackets.

What is a surrender charge?

A surrender charge is a fee imposed by the insurance company if you withdraw funds from a MYGA before the surrender period ends. The charge is expressed as a percentage of the amount withdrawn and typically decreases each year. After the surrender period ends, you can withdraw funds without this charge. Always review the surrender schedule in any contract you are considering.

How is a MYGA different from a fixed indexed annuity?

A MYGA credits a straightforward guaranteed fixed interest rate for the duration of the contract, and often a rate higher than the guaranteed minimum rate for the duration of the term selected, similar to a CD but with tax deferral and annuitization features. A fixed indexed annuity links its crediting rate to the performance of a market index, with a floor that limits downside at 0%, but a cap or participation rate that limits upside. MYGAs are generally simpler and more predictable; fixed indexed annuities offer the potential for higher interest in exchange for more complexity.

What happens if the insurance company that issued my MYGA becomes insolvent?

Each state maintains a guaranty association that steps in to provide protection to policyholders if an insurance company becomes insolvent. Coverage limits vary by state. In addition to reviewing the guaranty association coverage in your state, it is a sound practice to check the financial strength ratings of any insurer before purchasing an annuity. Canvas Annuity policies are issued by Puritan Life Insurance Company of America, which maintains strong financial ratings.

Is there a penalty for withdrawing from a MYGA before age 59 and a half?

If you withdraw earnings from a non-qualified MYGA before age 59 and a half, you may owe a 10% IRS early distribution penalty in addition to ordinary income tax on those earnings. This penalty does not apply to CDs unless they are held inside a retirement account. It is one of the reasons MYGAs are most appropriate for funds you intend to hold until or through retirement.