MYGA vs. CD: The Complete Comparison
The closest annuity equivalent to a CD is a Multi-Year Guaranteed Annuity (MYGA). Both guarantee a fixed rate for a fixed term. Here is how they compare on every dimension that matters:
Feature: Guaranteed rate | MYGA (Annuity): Yes — fixed for the full term | CD (Bank): Yes — fixed for the full term
Feature: Typical rate (5-year, 2026) | MYGA (Annuity): 4.50–5.25% (illustrative, varies by carrier) | CD (Bank): 3.75–4.50% (illustrative, varies by bank)
Feature: Rate advantage | MYGA (Annuity): Typically 0.25–0.75% higher | CD (Bank): Typically lower
Feature: Tax on interest | MYGA (Annuity): Tax-deferred — no taxes until withdrawal | CD (Bank): Taxed annually (1099-INT each year)
Feature: Insurance protection | MYGA (Annuity): Insurer’s claims-paying ability + state guaranty association | CD (Bank): FDIC-insured up to 50,000 (U.S. government-backed)
Feature: Annual fees | MYGA (Annuity): None | CD (Bank): None
Feature: Minimum investment | MYGA (Annuity): ,000–5,000 (carrier-dependent) | CD (Bank): /bin/sh–,000 (many have no minimum)
Feature: Available terms | MYGA (Annuity): 2–10 years | CD (Bank): 3 months–10 years
Feature: Early withdrawal penalty | MYGA (Annuity): Surrender charge (typically 1–8%, declining). Most allow 10% free annual withdrawal. | CD (Bank): Interest penalty (typically 3–12 months of interest)
Feature: Penalty severity | MYGA (Annuity): Higher — surrender charges can eat into principal in early years | CD (Bank): Lower — penalty is only forfeited interest, not principal
Feature: Death treatment | MYGA (Annuity): Full value to named beneficiary (avoids probate) | CD (Bank): Passes through estate (may require probate)
Feature: 1035 exchange option | MYGA (Annuity): Yes — can transfer to another annuity tax-free at maturity | CD (Bank): No — must cash out and reinvest (taxable event if gains exist)
Feature: Income conversion | MYGA (Annuity): Can 1035 exchange into a SPIA or DIA for lifetime income | CD (Bank): Must cash out, pay taxes, then purchase an annuity
Feature: Issued by | MYGA (Annuity): Insurance companies | CD (Bank): Banks and credit unions
Feature: Regulated by | MYGA (Annuity): State insurance departments | CD (Bank): FDIC, OCC, Federal Reserve, NCUA
Feature: Complexity | MYGA (Annuity): Low (simple fixed-rate product) | CD (Bank): Very Low
Rates shown are illustrative ranges for early 2026. Actual rates vary by carrier/bank, state, and term length and are subject to change. MYGA guarantees are backed by the issuing insurer’s claims-paying ability. Not FDIC-insured.
Why MYGAs Typically Pay Higher Rates
MYGAs consistently offer rates 0.25–0.75% higher than CDs of the same term. The difference is structural:
Banks fund CDs primarily with short-term deposits and invest conservatively to meet FDIC reserve requirements and regulatory capital ratios. Insurance companies fund MYGAs with long-duration investments — corporate bonds, mortgage-backed securities, and other fixed-income assets that match their long-term liabilities. Longer-duration, slightly higher-risk investments yield more, and insurers pass part of that yield to MYGA holders.
The tradeoff is the protection mechanism: CD depositors get FDIC insurance (government-backed). MYGA holders get the insurer’s claims-paying ability (not government-backed). More on this in the safety section below.
The Tax Advantage: Deferral vs. Annual Taxation
Tax Disclaimer:
This is where annuities have a clear, quantifiable advantage for savers who do not need the interest for current income.
With a CD, interest is taxable in the year it is earned — even if you do not withdraw it. You receive a 1099-INT annually, and that interest is added to your taxable income. For a saver in the 24% federal bracket, a 4.25% CD effectively yields about 3.23% after federal taxes.
With a MYGA, interest compounds tax-deferred. You owe no taxes until you make a withdrawal. This means every dollar of interest earns interest the following year, without the annual tax haircut. The compounding advantage grows over time.
Illustrative example:
CD:
MYGA:
MYGA advantage:
The tax advantage grows with higher balances, higher rates, longer terms, and higher tax brackets. For a 5-year 00,000 MYGA vs. CD, the after-tax difference can be ,000–0,000+.
Safety: FDIC vs. Insurer Claims-Paying Ability
This is where CDs have the clear advantage, and we will not sugarcoat it.
FDIC insurance protects CD deposits up to 50,000 per depositor, per bank, per ownership category. It is backed by the full faith and credit of the United States government. In the history of FDIC (since 1933), no depositor has ever lost a penny of insured deposits.
Annuities are NOT FDIC-insured. They are backed by the issuing insurance company’s financial strength and claims-paying ability. If an insurer becomes insolvent, state guaranty associations provide a secondary safety net (typically covering 50,000 in annuity benefits per owner per insurer), but this protection is not equivalent to FDIC insurance:
- Guaranty associations are funded by assessments on other insurers, not by the government
- Recovery may take months or years during insolvency proceedings
- Coverage limits and processes vary by state
- Guaranty associations should not be used as a selling point for annuities (this is prohibited in most states)
The practical reality: Major insurer insolvencies are rare but not impossible. Choosing carriers rated A.M. Best A- (Excellent) or better significantly reduces this risk. For amounts above 50,000, diversifying across multiple carriers provides additional protection — similar to diversifying CDs across multiple banks for additional FDIC coverage.
Our position:
When to Choose an Annuity vs. a CD
Appropriate For:
- You are in a higher tax bracket (22%+) and benefit from tax deferral
- You don’t need the interest for current living expenses
- Your time horizon is 3–10 years
- You have already maximized FDIC-insured accounts and want higher yield
- You want the option to 1035 exchange to another annuity or income product at maturity
- You want proceeds to bypass probate via named beneficiary
- You are comfortable with A-rated insurer credit risk
- The rate advantage is meaningful (0.50%+ over the best available CD)
Not Suitable For:
- FDIC protection is your top priority
- You need the interest for current income (CD pays interest periodically)
- Your time horizon is under 2 years
- You are in a low tax bracket (10–12%) where deferral saves little
- You want low or no minimum investment
- You may need early access (CD penalties are milder than surrender charges)
- This is emergency fund money or short-term savings
- You want the simplest possible product
The “both” strategy
Many savers use both products in a complementary structure: CDs for short-term liquidity and emergency reserves (FDIC-insured, easy access), and MYGAs for longer-term savings where the higher rate and tax deferral compound to a meaningful advantage. This is often the optimal approach for retirees with 00,000+ in savings.