The “CD Killer”: Why a MYGA Beats a Bank CD in 3 Critical Ways.
I Broke Up With My Bank and Got a Better, Safer Return.
I’d always kept my “safe money” in bank CDs, thinking FDIC insurance was the only option. My advisor showed me a Multi-Year Guaranteed Annuity (MYGA). I was shocked. First, the guaranteed interest rate was nearly two full points higher than my best CD rate. Second, the interest grew tax-deferred, meaning my money compounded faster. Third, it was protected by State Guaranty Associations. I was getting a higher return, a tax advantage, and a similar level of safety. It felt like I’d discovered a secret the banks don’t want you to know.
How to Get a Higher Guaranteed Interest Rate With a MYGA.
Stop Accepting the Low Rates the Bank Offers You.
My mom was about to roll over her bank CD for a measly 2.8% interest rate. She felt defeated, thinking that was the best she could do. I spent five minutes online and found A-rated insurance companies offering a 5-year MYGA with a guaranteed rate of 4.9%. She was stunned. She didn’t realize that insurance companies compete for “safe money” too, and they almost always offer significantly higher guaranteed rates than banks. She made the switch and nearly doubled her guaranteed interest income without taking on any market risk.
The Tax-Deferral Advantage: Why Your MYGA Grows Faster Than Your CD.
The Unseen Drag of Annual Taxes.
My friend and I each invested $100,000 at a 4% rate. His was in a bank CD; mine was in a MYGA. Every year, he had to pay income taxes on his $4,000 of interest, reducing his real return and slowing his growth. My $4,000 of interest, however, remained in my account, tax-deferred. The next year, I was earning interest on the full $104,000. It’s a small difference that becomes a huge advantage over time. Tax deferral is like putting a turbocharger on your compounding growth.
MYGA vs. CD: A Side-by-Side Comparison of a $100,000 Investment.
The Numbers Don’t Lie.
Let’s make it simple. You invest $100,000 for 5 years. A bank CD offers 3.5%. A MYGA offers 5.0%. After five years, the CD is worth about $118,768, but you’ve paid taxes on the interest each year. The MYGA is worth a guaranteed $127,628, and you haven’t paid a dime in taxes yet, allowing the full amount to compound. You are thousands of dollars ahead with the MYGA. The reality of the returns is undeniable. It’s a mathematically superior way to grow safe money.
The Liquidity Myth: Many MYGAs Offer Penalty-Free Withdrawals Just Like CDs.
My “Locked-Up” Money Wasn’t Locked Up at All.
I was hesitant to buy a MYGA because I feared my money would be completely locked up for five years. Then I read the fine print. My policy allows me to withdraw 10% of my account value every single year, starting in year one, completely free of any surrender charges. It was the exact same withdrawal provision my bank CD offered. I got the higher interest rate and tax deferral of an annuity without sacrificing the access to my money that I needed for peace of mind.
Don’t Let the Bank’s “Safety” Argument Fool You. MYGAs Are Backed by State Guarantees.
FDIC Isn’t the Only Sheriff in Town.
My banker tried to scare me away from a MYGA, saying, “It’s not FDIC insured.” He was right, but he was misleading me. Annuities are backed by the insurance company’s assets and a second layer of protection from State Guaranty Associations. These associations protect my policy up to a certain limit (typically $250,000 or more), similar to the FDIC. Once I understood that a robust safety net existed for MYGAs too, the bank’s only argument fell apart, and the higher interest rate made the choice obvious.
The Surprising Simplicity of a MYGA: No Market Risk, No Fees, Just a Guaranteed Rate.
The Most Boring, Beautiful Investment I Own.
After being confused by stocks and complex financial products, I found a Multi-Year Guaranteed Annuity. The contract was incredibly simple. It said I would earn a guaranteed 5.1% interest every year for three years. There were no hidden fees, no agent commissions taken from my money, no market risk, and no complex terms. It was a simple, honest promise. In a financial world full of noise and complexity, the beautiful simplicity and certainty of my MYGA has brought me incredible peace of mind.
When a CD Might Actually Be a Better Choice (Hint: It’s a Short-Term Goal).
The Right Tool for the Right Job.
I was saving up for a down payment on a house that I planned to buy in 18 months. My advisor recommended I put the money in a bank CD, not a MYGA. Why? Because most annuities have a surrender period of at least two or three years. Since my time horizon was so short, a CD was the better tool. It offered the liquidity I needed within my specific timeframe without the potential penalties of an annuity. It was a smart, honest recommendation that showed the importance of matching the product to the goal.
How to Ladder MYGAs for a Safe and Predictable Retirement Income.
I Became My Own Pension Manager.
Instead of putting all my retirement savings into one long-term MYGA, I created a “ladder.” I bought a 3-year, a 4-year, and a 5-year MYGA. Now, starting in three years, I will have a policy maturing every single year. This gives me access to a chunk of my money annually, which I can either spend or reinvest at the current, hopefully higher, interest rates. It’s a brilliant strategy that provides safety, liquidity, and a predictable stream of income, turning my savings into my own private, flexible pension.
The Best-Kept Secret in Fixed Income Investing That Your Banker Won’t Tell You.
They Can’t Sell You What They Don’t Have.
The Multi-Year Guaranteed Annuity is one of the best-kept secrets in finance for a simple reason: your banker can’t sell it to you. Banks sell bank products, like CDs. Insurance companies sell insurance products, like MYGAs. Because they compete for the same “safe money,” but annuities typically offer better rates and tax features, MYGAs are a threat to a bank’s business. Discovering MYGAs feels like finding a secret menu item with better prices and better ingredients.