What You Need to Know Before You Buy or Compare
When deciding between a Multi-Year Guaranteed Annuity (MYGA) and a traditional fixed annuity, it helps to understand how each works, who benefits most, and the trade-offs involved. Both products are fixed annuities, but they operate differently in how they guarantee interest rates.
Compare fixed annuity and MYGA rates here.
How Each Works
MYGA (Multi-Year Guaranteed Annuities):
A MYGA locks in a fixed interest rate for a set period (commonly 2–10 years). During that term, your rate will remain unchanged, regardless of any interest rate movements in the economy. At maturity, you can renew, roll over, or withdraw funds. This structure makes MYGAs similar to bank CDs but with tax-deferred growth.
Traditional Fixed Annuity:
A traditional fixed annuity also guarantees a minimum interest rate, but the insurer may adjust the credited rate after the first year. Typically, the company declares the rate annually, so future returns depend on renewal rates. It still provides tax-deferred growth, but your earnings may vary over time.
Pros and Cons
MYGA Pros:
- Predictable growth with guaranteed rates for the entire term.
- Functions like a CD but offers tax deferral.
- Often higher rates than traditional fixed annuities.
MYGA Cons:
- Tied up for a specific term with surrender charges.
- Renewal rates after the term are not guaranteed.
Traditional Fixed Annuity Pros:
- Guaranteed minimum rate set at purchase.
- Some flexibility if rates rise (you’re not locked into one rate for the entire term).
- Typically offers a fixed-rate option alongside index-linked strategies in FIAs.
Traditional Fixed Annuity Cons:
- Renewal rates may drop after the first year.
- Less predictable growth than MYGAs.
| Feature | MYGAs | Traditional Fixed Annuity |
|---|---|---|
| Rate Type | Fixed for a selected term | Guaranteed schedule (often tiered) |
| Rate Changes | No | No (rates vary by year, but locked in) |
| Credit Frequency | Annually | Annually |
| Compounding | Yes | Yes |
| Market Downside Risk | None | None |
| Growth Potential | Low | Low to Moderate |
| Transparency | High | Medium |
| Flexibility in Strategy | None | None |
| Market Exposure | None | None |
| Liquidity | Withdrawals subject to contract limits and surrender charges | Often more flexible than MYGAs |
| Lifetime Income Option | Only via annuitization | Annuitization or separate rider |
| Ideal For | Safe short- to mid-term growth | Long-term guaranteed growth |
| Surrender Charges | 2–10 years | 3–10 years |
Bottom Line
- Choose a MYGA if you want CD-like stability and tax-deferred growth with a locked-in rate.
- Choose a Traditional Fixed Annuity if you want a guaranteed minimum but are comfortable with the renewal rates changing annually.
Both can be funded by non-qualified money, IRAs, 401(k) rollovers, or other retirement accounts, making them flexible tools for retirement planning.
👉 Contact The Annuity Expert today for free quotes and to compare MYGA and traditional fixed annuity rates side by side. We’ll help you determine which option best suits your financial goals.
Book A Free Consultation
Get help from a licensed financial professional. This service is free of charge.
Let Us Answer Your Questions
Not quite ready for a meeting, but you have a question that needs answering? We’re happy to help. Leave an inquiry below, and one of our staff will respond via email.
Questions From Our Readers
Can you lose money on a fixed annuity?
You can lose money on a fixed annuity if you withdraw funds early and incur surrender charges. Additionally, inflation can erode purchasing power if the annuity’s interest rate doesn’t outpace inflation. It’s essential to understand the terms and conditions.
What is the downside of a MYGA annuity?
The downside of a MYGA (Multi-Year Guaranteed Annuity) is its lack of liquidity. Early withdrawals often incur substantial surrender charges. Additionally, the fixed interest rate might not outpace inflation, potentially eroding the real value of your investment over time.