Updated: August 17, 2026

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A multi-year guaranteed annuity is the closest thing the insurance industry sells to a bank certificate of deposit. It credits a fixed interest rate that is stated up front and locked in for a chosen number of years. Retirees confuse it with a CD, and they also confuse it with a fixed-indexed annuity, but a MYGA sits between them and behaves differently from both.

The confusion matters because the tax rules, the way the money is protected, and the way you can get out early are not the same as with a CD. This page walks through the mechanics with the numbers named and the code sections cited, so the difference is precise, not marketing.

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What a MYGA actually is

A multi-year guaranteed annuity, or MYGA, is a type of fixed deferred annuity. The insurance company promises to credit a specific interest rate for the entire guarantee period. That period is usually three, five, seven, or ten years, and the rate does not change once the contract is issued.

MYGAs are sold by life insurance companies, not by banks. The Securities and Exchange Commission classifies annuities as insurance products, and the U.S. investor education site Investor.gov confirms that fixed annuities credit at a set minimum rate declared by the insurer, without linkage to a stock or bond index.

The label “multi-year guaranteed” distinguishes these contracts from older fixed annuities that guaranteed the rate for only one year at a time and then reset annually. In a MYGA, the guarantee period and the surrender period usually match, so a five-year MYGA credits its stated rate for five years and imposes a surrender charge if you withdraw during those five years.

How a MYGA differs from a bank CD

A bank certificate of deposit and a MYGA look alike on the surface. Both credit a fixed rate for a fixed term. Underneath, they run on different legal and tax rails, and four differences matter for a retiree.

Issuer. A CD is issued by a bank or credit union. A MYGA is issued by a life insurance company.
Protection. A CD is insured by the FDIC up to $250,000 per depositor per bank. A MYGA is not FDIC-insured. It is backed by the state guaranty association of the state where the contract owner resides.
Taxation. Interest credited to a bank CD is reported and taxed each year on Form 1099-INT. Interest credited inside a non-qualified MYGA is tax-deferred until you take it out.
Liquidity. A bank CD only lets you cash out at maturity, though some pay a small early-withdrawal penalty of a few months of interest. Most MYGAs allow a free withdrawal of up to 10 percent of the contract value each year with no surrender charge.

The 10 percent free withdrawal is one of the more useful features. It gives a retiree living on the interest a legal way to take income each year without breaking the surrender-charge wall.

How a MYGA differs from a fixed-indexed annuity

A fixed-indexed annuity, or FIA, is also a fixed annuity in the sense that principal is guaranteed, but the interest credited depends on the movement of a stock market index such as the S&P 500. The credited amount is subject to a participation rate, a cap, or a spread, all set by the insurer and often adjustable each year.

A MYGA does none of that. The rate is a single number, stated in the contract at issue, and it does not vary with any index. If the contract says 5.25 percent for five years, you receive 5.25 percent for five years, period.

For a retiree who wants a predictable outcome with no moving parts, that clarity is the point. For a retiree who wants some upside participation with a floor, a FIA is a different product with a different risk-and-return profile.

A worked example: $100,000 at 5.25 percent for five years

Take a hypothetical five-year MYGA credited at 5.25 percent, compounded annually. A single premium of $100,000 grows to $105,250 at the end of year one. At the end of year two, the balance compounds to $110,777. It continues at $116,592 after year three, $122,714 after year four, and $129,156 at the end of year five.

Because the credited rate is contractually fixed, the retiree knows the year-five balance the day the check is written. The chart below plots the same numbers year by year.

Bar chart showing the year-end account value of a $100,000 multi-year guaranteed annuity credited at a fixed 5.25 percent, compounded annually, over a five-year surrender period. Year 0 opens at $100,000, year 1 reaches $105,250, year 2 reaches $110,777, year 3 reaches $116,592, year 4 reaches $122,714, and year 5 reaches $129,156. — Figure 1. Account value at the end of each contract year for a $100,000 MYGA credited at a fixed 5.25 percent, compounded annually. Numbers are the compound-interest calculation applied to the illustrative 5.25 percent five-year rate cited in this article; carrier rates vary at issue.

The same $100,000 rolled through five successive one-year bank CDs would earn a rate that resets each year. If national one-year CD rates fall in year two or year three, the reinvested principal earns less. The MYGA trades that reinvestment risk for a longer lock-up and a surrender-charge schedule.

The surrender charge schedule and the 10 percent free withdrawal

Withdrawing more than the free-withdrawal amount before the guarantee period ends triggers a surrender charge. The schedule is a declining percentage of the amount withdrawn. A common seven-year MYGA might charge 7 percent in year one, then 6, 5, 4, 3, 2, and 1 percent, dropping to zero after year seven.

The specific schedule is written in the contract and varies by carrier and by product. The pattern is always the same: the charge is highest in year one and declines to zero at the end of the surrender period.

Most contracts pair this schedule with a free-withdrawal provision. The typical allowance is 10 percent of the account value per year, taken out with no surrender fee. That corridor is what lets a retiree draw modest income during the surrender window without penalty.

Market value adjustment: what an MVA rider does

Some MYGA contracts include a market value adjustment, or MVA. When a retiree withdraws above the free-withdrawal amount during the surrender period, the insurer applies a formula that reflects the change in prevailing interest rates since the contract was issued.

If rates have risen since issue, the MVA is negative and reduces the withdrawal. If rates have fallen, the MVA is positive and increases it. The adjustment is on top of the surrender charge, not instead of it.

An MVA rider is not a hidden clause. It is a named provision in the contract and often ships with a slightly higher credited rate in exchange for the added flexibility given to the insurer. A retiree who does not want that variable can ask for a MYGA without an MVA and accept a modestly lower rate.

How the IRS taxes a non-qualified MYGA

A non-qualified MYGA is one purchased with after-tax money outside of an IRA or 401(k). Internal Revenue Service Publication 575 sets out how amounts received from any annuity are taxed. Interest credited each year is not taxed while it remains inside the contract. Tax is triggered when money comes out.

Withdrawals from a non-qualified annuity that are not received as an annuitized stream follow a last-in, first-out order under Section 72(e) of the Internal Revenue Code. Gains come out first and are taxed as ordinary income. Only after all gain is withdrawn does a return of the after-tax premium begin.

A withdrawal of gain taken before the owner reaches age 59 and a half is generally subject to an additional 10 percent tax under Section 72(q). The Internal Revenue Code lists narrow exceptions to that additional tax, including death, disability, and substantially equal periodic payments.

Qualified MYGAs held inside an IRA

A MYGA can also be held as the investment inside a Traditional IRA, a Roth IRA, or a rollover IRA. When held that way, the annuity is called a qualified MYGA, and the tax rules follow the rules of the containing IRA, not the non-qualified annuity rules above.

Inside a Traditional IRA, withdrawals are ordinary income when taken, and required minimum distributions apply beginning at the age specified by current law. Inside a Roth IRA, qualified withdrawals are tax-free and RMDs do not apply during the owner’s lifetime.

The 10 percent additional tax on early withdrawal from a qualified MYGA follows Section 72(t) rather than Section 72(q), and the same list of exceptions largely applies. The point is that the containing account controls the tax treatment, and the MYGA inside it acts like any other IRA holding.

State guaranty association coverage limits

A MYGA is not backed by the FDIC. If the issuing insurance company becomes insolvent, the safety net is the state guaranty association of the state in which the contract owner resides at the time of insolvency.

Each state sets its own coverage limits. The National Organization of Life and Health Insurance Guaranty Associations, or NOLHGA, publishes a state-by-state table of the current limits. A common limit for annuity present value is $250,000 per contract owner per insurer, but several states set higher or lower amounts and some cap combined life and annuity coverage differently.

A prospective MYGA buyer should verify the exact limit that applies in their state of residence at NOLHGA before committing more than a modest premium to a single carrier. Splitting a large premium across two insurers is a common way to keep each contract within the guaranty limit.

Moving MYGA money with a 1035 exchange

At the end of the guarantee period, a MYGA owner has choices. The contract can be annuitized into an income stream, surrendered for the cash value, or exchanged tax-free into another annuity under Section 1035 of the Internal Revenue Code.

A 1035 exchange preserves tax deferral by moving the accumulated value directly from the old contract into a new annuity, without treating the movement as a withdrawal. The mechanics, the same-owner rule, and the trap of resetting a fresh surrender-charge schedule are covered in the OPRS page on the 1035 exchange rules for tax-free annuity swaps.

Multi-Year Guaranteed Annuity (MYGA): The CD-Like Annuity Decoded