A MYGA is an annuity that locks in a fixed interest rate for a set number of years

A Multi-Year may provide Annuity (MYGA) is a contract with an insurance company where you give them a lump sum of money, and they promise to pay you a fixed interest rate for a specific period — usually three to ten years. During that time, your money grows at the rate the company may provide when you bought the contract. At the end of the may provide period, you can renew at a new rate, move the money elsewhere, or start taking withdrawals.

The word "may provide" means the insurance company is legally obligated to pay that rate, regardless of what happens to market interest rates or the economy. If rates rise, you keep your locked-in rate. If rates fall, you still keep your locked-in rate. You do not have to make investment decisions or monitor market performance — the insurance company handles that.

MYGAs are different from other annuities because they offer certainty about your return. You know exactly what rate you will earn and for exactly how long. This appeals to people who want predictable growth without stock market risk, especially those nearing or in retirement.

Key Takeaways

  • You deposit a lump sum with an insurance company and receive a may provide fixed interest rate for a set term, typically three to ten years.
  • Your rate is locked in and does not change, even if market interest rates move up or down during the may provide period.
  • At the end of the term, you can renew the contract at whatever new rate the company offers, withdraw your money, or transfer it to another product.
  • MYGAs carry no stock market risk, but your money is tied up — withdrawing early usually costs you a surrender charge.
  • The insurance company's financial strength matters because they are the one promising to pay you, so check their ratings before you buy.

How the may provide period and renewal work

When you purchase a MYGA, you choose the length of the may provide period at the start. Common terms are three, five, seven, or ten years. The insurance company quotes you a rate for that exact period. Once you sign, that rate is fixed for the entire term — you cannot change it, and neither can the company.

As the may provide period nears its end, the insurance company will contact you with renewal options. You might see a new rate (usually lower if overall interest rates have fallen, higher if they have risen). You can accept the new rate and renew for another term, or you can take your money out without penalty. Some contracts also let you transfer the balance to another annuity or investment without triggering a surrender charge during the renewal window.

If you do nothing and let the contract renew automatically, you will be locked into the new rate for the new term. Read renewal notices carefully — the new rate is often lower than what you had, and you have a limited window (usually 30 to 60 days) to make a change without cost.

What happens if you need your money before the term ends

MYGAs are designed to keep your money invested for the full may provide period. If you withdraw money before the term is up, the insurance company charges a surrender charge — a penalty that reduces what you get back. The surrender charge is usually a percentage of your withdrawal and is highest in the early years, then decreases as you approach the end of the term.

For example, a MYGA might have a 7% surrender charge in year one, 6% in year two, and so on, dropping to 0% in year seven. If you withdraw $100,000 in year two, you would owe $6,000 in surrender charges and receive $94,000. Some contracts allow you to withdraw a small amount (often 10% per year) without penalty, but this varies by company and contract.

Before you buy a MYGA, read the surrender charge schedule carefully. Make sure you will not need the money during the may provide period, or that you can afford the penalty if circumstances change. If you think you might need access to your funds, a MYGA may not be the right choice.

MYGA rates and how they compare to other products

MYGA rates change based on overall interest rates in the economy, the length of the may provide period, and the insurance company's own pricing. Longer terms usually offer higher rates than shorter ones — a ten-year MYGA typically pays more than a three-year MYGA. When the Federal Reserve raises rates, new MYGAs issued by insurance companies tend to offer higher rates. When rates fall, new MYGAs offer lower rates.

MYGAs generally pay more than savings accounts or money market accounts at banks, because you are locking your money away for years. They typically pay less than stock-based investments over long periods, but they carry no market risk. They also usually pay less than variable annuities (which tie your return to market performance), but variable annuities can lose value if markets fall.

To compare MYGA rates, you need to look at multiple insurance companies. Rates vary significantly — one company might offer 4.5% for five years while another offers 4.0% for the same term. Shop around before you buy, and make sure you understand the surrender charge schedule and any other fees.

Who issues MYGAs and why insurance company strength matters

Only insurance companies issue MYGAs — banks do not. The insurance company is promising to pay you a specific rate for years into the future, so their financial stability directly affects whether they can keep that promise. If an insurance company fails, your MYGA is protected up to a limit by your state's insurance may provide fund, but that limit is often $100,000 to $250,000 per contract, depending on your state.

Before you buy a MYGA, check the insurance company's financial strength rating from agencies like A.M. Best, Moody's, or Standard & Poor's. These ratings tell you how likely the company is to pay claims. A company with an A or higher rating is generally considered financially strong. You can find these ratings on the rating agencies' websites or ask your financial advisor.

Buying a MYGA from a well-known, financially strong company reduces the risk that you will lose your money due to company failure. Smaller or newer insurance companies sometimes offer higher rates to attract customers, but the extra rate may not be worth the added risk if the company is less stable.

Tax treatment of MYGA earnings

Interest earned inside a MYGA is not taxed until you withdraw it. If you hold the MYGA in a regular (non-retirement) account, you will owe income tax on the interest when you take money out. If you hold it in an IRA or other retirement account, tax is deferred until you take distributions according to retirement account rules.

Some people use MYGAs inside IRAs to get tax-deferred growth without market risk. Others use them in regular accounts as part of a diversified portfolio. Talk to a tax professional about how MYGA earnings will affect your specific tax situation, especially if you are in a high tax bracket or have other income sources.

Common reasons people choose MYGAs and when they might not be the right fit

People often choose MYGAs because they want may provide growth without having to monitor investments, because they are close to retirement and want to reduce risk, or because they have money they know they will not need for several years. MYGAs also appeal to people who are uncomfortable with stock market volatility but want better returns than a savings account.

MYGAs are not a good fit if you might need your money within the may provide period, because the surrender charge will cost you. They are also not ideal if you expect interest rates to rise significantly and want the flexibility to move your money to higher-paying products. If you are young and have a long time horizon, stock-based investments historically have returned more over decades, though with more ups and downs along the way.

MYGAs work best as part of a larger financial plan, not as your only investment. Consider how a MYGA fits with your other savings, retirement accounts, and goals before you commit.

Frequently Asked Questions

Can I move my MYGA to a different insurance company without paying a surrender charge?

Yes, through a process called a 1035 exchange, which lets you transfer a MYGA to another annuity without triggering taxes or surrender charges. However, you will be starting a new may provide period with the new company, and the new rate will be whatever that company is offering at the time. Consult a tax professional or financial advisor before doing a 1035 exchange to make sure it makes sense for your situation.

What is the difference between a MYGA and a CD at a bank?

Both lock your money for a set term at a fixed rate, but CDs are issued by banks and insured by the FDIC up to $250,000. MYGAs are issued by insurance companies and insured by state may provide funds, which vary by state. MYGAs often pay higher rates than CDs, but you should compare current rates from both before deciding. CDs are generally simpler and have fewer terms to understand.

What happens to my MYGA if the insurance company goes out of business?

Your state's insurance may provide fund will step in to protect your contract, up to a limit that varies by state (often $100,000 to $250,000). The fund may transfer your contract to another insurance company or pay you out. This protection exists, but it is not as straightforward as FDIC insurance on a bank account. Buying from a financially strong company reduces the chance you will need this protection.

Can I withdraw money from my MYGA without a penalty?

Most MYGAs allow you to withdraw a small percentage (often 10% per year) without a surrender charge, but this varies by contract. Any withdrawal beyond that amount will trigger a surrender charge. Some contracts have a free withdrawal window during the renewal period. Check your contract for the exact rules before you buy.

Should I buy a MYGA or a variable annuity?

A MYGA offers a may provide rate with no market risk, while a variable annuity ties your return to market performance and can lose value. MYGAs are simpler and more predictable; variable annuities have higher potential returns but also higher fees and complexity. Your choice depends on your risk tolerance, time horizon, and how much certainty you need. A financial advisor can help you decide based on your specific situation.