We have had a tremendous amount of inquiries regarding Multi-Year Guaranteed Annuities (MYGAs) in the last year. The recent enthusiasm for MYGAs is the result of the sustained low-interest environment we’ve found ourselves in. Below are some of the pros and cons of MYGAs, followed by our recommendation.
Pros of MYGAs:
- Safe
- Better interest rates than Certificates of Deposit (CDs)
- Backed by large insurance companies, for instance A+ or A rated
- Tax deferred (whereas with a CD you pay taxes on the interest each year)
- Most offer 10% free withdrawals each year
- Nearly all offer interest withdrawals each year
- Many offer annuitization
Cons of MYGAs:
- Time commitment, for instance 3, 5 or 7 years
- Surrender charges if you decide you want to withdraw prior to end of the period
- Possible market value adjustment (MVA)
- Not FDIC insured, whereas CDs are
- 10% tax penalty for withdrawing prior to age 59 1/2
Recommendation on MYGAs
If you are comfortable with the time commitment and these are funds you intend to use after age 59 1/2, then a MYGA is a great way to earn a better interest rate.
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