A multi-year guaranteed annuity (MYGA) and a bank CD both lock in a guaranteed rate for a set number of years. The big differences are taxes, access to your money and who stands behind the guarantee. In a taxable account, CD interest is taxed each year as it’s earned, while interest in a non-qualified MYGA is tax-deferred until you take money out. A CD is FDIC-insured up to the limits; a MYGA is backed by the insurance company that issues it.
Key takeaways
- Both give a guaranteed rate for a set term, most often 3, 5 or 7 years for a MYGA.
- Outside an IRA, CD interest is taxed each year; non-qualified MYGA interest is tax-deferred until withdrawn. Inside an IRA, both follow the IRA’s rules.
- Most MYGAs allow a free withdrawal each year; larger withdrawals during the term carry a surrender charge.
- A CD is FDIC-insured up to the limits; an annuity is not FDIC-insured and is backed by the issuing insurance company.
- The free-withdrawal allowance only avoids the insurer’s surrender charge. Separately, the taxable part of a withdrawal before 59½ can face a 10% IRS additional tax unless an exception applies.
What is a MYGA?
A MYGA is a fixed annuity that pays a guaranteed interest rate for a set term. It has only three moving parts: how long the money is committed, what rate is guaranteed for that period, and how much you can take out along the way. That simplicity is why it is often called the CD alternative.
MYGA vs. CD side by side
| Bank CD | MYGA (fixed annuity) | |
|---|---|---|
| Guaranteed rate for the term | Yes | Yes |
| Taxes on interest (taxable account) | Taxed every year as earned (you get a 1099-INT) | Tax-deferred until withdrawn (non-qualified MYGA) |
| Compounding | Interest left in the CD compounds; in a taxable account, tax on it is due each year, whether you pay it from the CD or other money | Interest compounds, and in a non-qualified MYGA no tax is due on it until it is withdrawn |
| Access before the term ends | Early withdrawal penalty | Often a limited free withdrawal each year (varies by contract); surrender charge and possibly a market value adjustment above that |
| Who backs it | FDIC, up to its limits | The issuing insurance company (not FDIC-insured) |
| Before age 59½ | No IRS additional tax (bank penalty may apply) | 10% IRS additional tax on the taxable part, unless an exception applies |
Product details vary by carrier, so always check the specific contract.
Taxes: why deferral matters
In a regular taxable account, CD interest is taxed in the year it’s earned, even if you leave it in the CD to compound. You pay that tax from the CD or from other money. In a non-qualified MYGA (one bought with money that has already been taxed), interest also compounds, but no income tax is due on it until you withdraw it. Over a long term, deferring tax can leave more of the interest working for you, but the difference depends on your tax bracket now and when you withdraw.
Inside an IRA or other tax-qualified account, the comparison changes: a CD held in an IRA also grows tax-deferred, and withdrawals from either follow the IRA’s rules. So for IRA money, the main differences are the rate, the term, access and who backs the guarantee, not tax deferral.
When you do withdraw from a non-qualified annuity (one bought with money that has already been taxed), the IRS treats the money as coming from earnings first, and those earnings are taxed as ordinary income; your original premium isn’t taxed again (IRS Publication 575). The taxable part of a withdrawal before age 59½ can also be subject to a 10% additional tax unless an exception applies (IRS Topic 558). For a closer look at the math, see Tax-deferred vs. taxable: how to explain an annuity’s real yield.
Access to your money
A CD usually charges an early withdrawal penalty if you cash it in before it matures. Many MYGAs let you take out part of the value each year without a surrender charge, such as a percentage of the value or the interest earned; the amount varies by contract. Taking more than that during the term triggers a surrender charge that usually declines each year, and some contracts also apply a market value adjustment. A free withdrawal avoids the surrender charge, but not taxes. Keep an emergency fund outside the annuity so you don’t need to touch it early.
Who stands behind the guarantee
Bank deposits are insured by the FDIC. The standard amount is $250,000 per depositor, per insured bank, for each account ownership category (FDIC). A MYGA is not a bank product and is not FDIC-insured (FDIC: financial products that are not insured). Its guarantees rest on the financial strength and claims-paying ability of the insurance company that issues it, which is why we compare carriers’ financial ratings, not just their rates.
Rates on both CDs and MYGAs change often. If you are comparing the two, compare current quotes for the same term on the same day.
Who a MYGA fits, and who it doesn’t
- A MYGA may fit if you: have money in CDs or savings you won’t need for the term, are near or in retirement, and want a guaranteed rate with tax-deferred growth.
- A CD may fit better if you: may need the money before the term ends, are under 59½ and may need to withdraw, or want FDIC coverage on that money.
If the money is in an IRA, required minimum distributions still apply once they begin, generally at age 73 (IRS), or 75 for people born in 1960 or later (Treas. Reg. §1.401(a)(9)-2). Talk with a tax professional about your situation.
How SRS can help
We compare MYGA rates and carriers across our 60+ carrier relationships and walk you through the trade-offs in plain English. There’s no cost to talk. Talk to Tim or call 303-309-3471. Want to see the other types? Our annuities page covers fixed, fixed indexed and income annuities.
Financial professionals: the MYGA vs. CD conversation is the first opener in our free Annuity 101 cheat sheet for agents.
Frequently asked questions
Is a MYGA better than a CD?
It depends on your goals. A MYGA offers tax-deferred growth and a guaranteed rate, while a CD offers FDIC insurance up to the limits and no IRS additional tax before 59½. People near retirement with money they won’t need for the term often compare both.
Is a MYGA FDIC insured?
No. A MYGA is backed by the financial strength and claims-paying ability of the insurance company that issues it, not by the FDIC.
Can I take money out of a MYGA early?
Many MYGAs allow a limited free withdrawal each year; the amount varies by contract. Taking more during the term usually triggers a surrender charge and possibly a market value adjustment. Separately, the taxable part of a withdrawal before age 59½ can face a 10% IRS additional tax unless an exception applies.
How long are MYGA terms?
The most popular terms are 3, 5 and 7 years. At the end of the term you can usually renew, move the money to another annuity or take it out.
Sources: IRS Publication 575: pension and annuity income; IRS Topic 558: additional tax on early distributions; IRS: required minimum distributions; Treas. Reg. §1.401(a)(9)-2; FDIC: understanding deposit insurance; FDIC: financial products that are not insured
General information, not tax or legal advice. Annuities are not bank deposits and are not FDIC-insured. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Product features, caps and rates vary by carrier, contract and state.
Reviewed by Tim Fuller on 2026-10-14
Tim Fuller
President, SRS Inc.
Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.
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