Episode Show Notes
So I had a conversation with my aunt over the Fourth of July — she’s sixty-eight, just moved some money out of a savings account that was paying her basically nothing — and she called me asking whether she should put it in a CD or something called a MYGA. And honestly, Caleb, I didn’t have a great answer for her in the moment.
That’s such a common place to be right now. And the fact that she’s even asking about MYGAs tells you something — a few years ago most people had never heard that term. Now it’s showing up in conversations at the dinner table.
Right, and I think part of what’s driving that is rates. Because for a long time fixed annuities were kind of a tough sell when everything was near zero. But that’s obviously changed.
Dramatically changed. We’re looking at top five-year MYGA rates in the neighborhood of six point eight percent right now, as of early August twenty twenty-six. Compare that to a top bank CD at the same term — you’re looking at something closer to four and a quarter, maybe four and a half. That’s a meaningful gap.
Okay but wait — let’s back up for a second, because I want to make sure we’re not losing people. What even is a MYGA? Like, can you just explain that plainly?
Yeah, so MYGA stands for multi-year guaranteed annuity. It’s an insurance contract — not a bank product, that’s important — where you hand the carrier a lump sum, and they agree to credit you a specific interest rate for the entire contract term. Could be two years, three years, five, seven, ten.
And that rate doesn’t change during that period?
That’s the defining feature. The rate is locked for the full term. So if you sign a seven-year MYGA at seven point two percent, that’s what you’re earning every year for seven years — it doesn’t reset, the carrier can’t come back and say ‘oh, rates dropped, we’re adjusting you down.’
Which is actually different from some other types of fixed annuities, right? Because I’ve heard people talk about declared-rate annuities and I always get those confused with MYGAs.
Good catch. Yeah, a traditional declared-rate fixed annuity typically only locks in the rate for the first year. After that, the carrier resets it annually at their discretion. So you might get a great rate in year one and then watch it drift lower. MYGAs eliminate that uncertainty — you know exactly what you’re getting for the whole term.
Okay, so for someone like my aunt who just wants predictability — she doesn’t want to be surprised — a MYGA makes more sense than a traditional declared-rate product.
For most buyers who want that ‘set it and know what you’ve got’ feeling, yes, MYGAs are almost always the better fit. The trade-off is that your money is committed for the term, with some limitations on how much you can pull out early.
And that’s the surrender charge piece, which I want to come back to. But first — you mentioned seven point two percent on a seven-year. What does the landscape look like across different terms right now?
So the general shape of it right now: three-year MYGAs are topping out around six point one percent. Five-year — which is by far the most popular term — is near six point eight. Seven-year is where you see the highest fixed yields, around seven point two. And then ten-year is interesting because the yield curve has flattened, so you’re actually looking at something closer to six point two five, which is lower than the seven-year.
Wait, the ten-year pays less than the seven-year? That seems backwards.
It does feel counterintuitive. Normally you’d expect longer commitment, higher rate. But when the yield curve flattens — meaning the difference between short and long-term bond yields compresses — that relationship breaks down. Carriers price off the bonds they’re buying with your premium, so if a ten-year Treasury isn’t yielding that much more than a seven-year, the carrier can’t offer a dramatically higher rate just because the term is longer.
That’s actually a really important thing to understand. Because I think a lot of people assume longer always means more.
Usually it does, but not always. Right now, the sweet spot for yield is actually that seven-year range. Which doesn’t mean everyone should do seven years — it depends entirely on when you need the money.
Yeah, and that’s the practical question, isn’t it. Let’s talk about what drives these rates in the first place, because I think that helps people understand whether now is a good time to lock in or whether they should wait.
So the biggest driver is Treasury yields — specifically the ten-year Treasury. Insurance carriers take your premium and invest it primarily in investment-grade bonds, Treasuries, high-quality corporate debt. The yield those bonds generate sets the ceiling for what they can pay you and still run a profitable business.
So it’s basically — the carrier is earning X on the bonds, and they pass most of that through to you, keeping a spread for themselves.
Exactly. Think of it like a water tank. The bond yield fills the tank, and the carrier opens a valve to let some of that flow to you as your credited rate. The wider the valve, the higher your rate — but they always keep some in the tank for operating costs and profit. When Treasury yields fall, less water comes in, and they have to close the valve.
I like that. So right now the ten-year Treasury is sitting where?
In a range of roughly four point two to four point five percent as of mid-twenty twenty-six. The Fed has been in a holding pattern after its rate-hike cycle, and that’s kept MYGA rates near multi-decade highs. Not quite the peaks we saw in twenty twenty-four, but still very elevated by historical standards.
So the question everyone’s asking — rates going up or down from here?
The honest answer is nobody knows for certain. If the Fed cuts aggressively in the second half of twenty twenty-six, you could see top five-year MYGA rates drop back below six percent pretty quickly — within a quarter, potentially. If they hold or signal a more restrictive stance, current rates probably stay near where they are.
So is there a case for just locking in now rather than trying to time the market — or time the rate, I guess?
I’d put it this way: if today’s rate fits your retirement income plan, locking it in now removes the risk of rates moving lower before you act. Trying to time the absolute top is really difficult, and people who’ve been waiting for ‘just a little higher’ for the past year have sometimes watched rates drift down instead. That said — and I want to be clear — this is a decision to make with a licensed agent who knows your full picture, not a decision to make based on rate-chasing alone.
Right, because the rate is only one piece of the puzzle. Let’s talk about the carrier piece, because this is where I think people get tripped up. They see a rate table, they go straight to the top number, and they don’t ask any other questions.
And that can be a real mistake. On any given day, the spread between the highest and lowest MYGA rate for the same term can be a hundred to a hundred and fifty basis points — that’s a full percentage point or more. And that gap isn’t random. It reflects real structural differences between carriers.
Like what?
Financial strength is the big one. The highest-rated carriers — AM Best A-plus-plus or A-plus — almost never lead the rate tables. They compete on stability and brand reputation, not yield. The highest rates often come from newer carriers or private-equity-backed carriers with more aggressive investment mandates.
And that’s not necessarily a dealbreaker, but it’s something you need to know.
Right. There’s a metric called a Comdex score — it’s basically a composite ranking of a carrier’s financial strength ratings across multiple agencies, on a scale of one to a hundred. A seven percent rate from a carrier with a Comdex of fifty-five is a genuinely different proposition than a six point four percent rate from a carrier with a Comdex of ninety. You’re taking on more uncertainty in exchange for that extra yield.
And for some people that trade-off might be fine, but you need to go in with eyes open.
Exactly. A licensed agent can walk you through what those scores mean in the context of your specific situation — how much you’re depositing, whether it’s in an IRA, what state you’re in, all of that.
Okay, let’s talk about the surrender charge thing, because I promised we’d come back to it and I think it scares people unnecessarily sometimes — but also maybe doesn’t scare them enough in other cases.
Ha — yeah, it’s both. So a surrender charge is the fee the carrier imposes if you withdraw more than the allowed amount before the contract term ends. The reason it exists is actually what enables the higher rate — the carrier can commit to longer-duration, higher-yielding bonds because it knows most policyholders won’t exit early.
So the surrender charge is kind of the mechanism that makes the higher rate possible in the first place.
That’s exactly right. And here’s the part that surprises a lot of buyers: most MYGAs allow you to withdraw up to ten percent of your account value per year after the first contract year, with no surrender charge. So it’s not like your money is completely locked up.
That’s actually more liquidity than I think most people expect. My neighbor — sixty-two, just retired last year — she almost didn’t do a MYGA because she thought she couldn’t touch the money at all for the full term. Nobody had told her about the free withdrawal provision.
That’s such a common misconception. Now, ten percent a year isn’t unlimited access — if you need to pull out fifty percent in year two, you’re going to pay a surrender charge. But for most retirees who are using a MYGA as one bucket in their overall plan, that ten percent provision gives them meaningful flexibility.
And there’s also the market-value adjustment thing, which I’ll be honest — I had to read about three times before I felt like I understood it.
MVAs are one of those features that can really change the math on early withdrawal. Basically, if interest rates have risen since you bought the contract and you try to exit early, the MVA can reduce your surrender value — because the carrier is sitting on bonds that are worth less in a rising-rate environment. Some high-rate MYGAs include MVAs, and it’s something you absolutely need to understand before you sign.
So a higher headline rate with an MVA attached might actually not be the better deal once you factor in what happens if you need to get out.
Correct. That’s why you can’t just look at the rate in isolation. You have to read the full contract terms — or have someone who’s read a lot of these contracts read it with you.
Alright, let’s do the comparison that I know everyone wants — MYGA versus CD versus Treasuries. Because that’s the question my aunt was really asking.
So at current levels: top three-year bank CDs are around four point four five percent. Five-year Treasuries are yielding roughly four point two five. And a top five-year MYGA is near six point eight. So you’re looking at a rate advantage of somewhere between two and two and a half percentage points for the MYGA.
And that’s before you factor in taxes.
Right, and the tax piece is where it gets really interesting. CD interest is taxable in the year it’s earned — even if you leave it in the CD and reinvest it. Treasury interest is exempt from state income tax but fully taxable at the federal level. MYGA growth is tax-deferred — you don’t pay taxes on it until you withdraw.
So on a large deposit, the combination of a higher rate and tax deferral over five years could be pretty significant.
On two hundred thousand dollars over five years, the difference between a top CD and a top MYGA — accounting for both the rate gap and the tax deferral — can be tens of thousands of dollars in after-tax growth, depending on your bracket. The exact number depends on your federal and state tax situation, which is why you’d want a licensed agent or a tax advisor to run those numbers specifically for you.
But the point is the rate table alone understates the advantage.
Often, yes. Though I want to be fair — the protection mechanisms are different, and that matters. CDs are FDIC insured up to applicable limits. MYGAs are backed by the claims-paying ability of the issuing carrier, and then secondarily by your state’s guaranty association.
And guaranty association limits vary by state.
They do. So if you’re putting a large sum into a MYGA, it’s worth checking your state’s specific limits and potentially spreading across carriers if the amount is significant. Again, a licensed agent can help you think through that.
Okay, I want to touch on fixed index annuities because they keep coming up and I know some people get them confused with MYGAs. They’re both ‘fixed’ in some sense but they work really differently.
Yeah, the naming is a little unfortunate because ‘fixed index annuity’ sounds like it should be similar to a fixed annuity, but the mechanics are quite different. With a MYGA, you get a flat credited rate — period. With a fixed index annuity, your interest credits are linked to the performance of a market index, like the S&P five hundred.
But you don’t actually own stocks.
Right, it’s not a securities product. The index is just used as a measuring stick. If the index goes up, you earn interest up to a cap rate. Current top cap rates on annual point-to-point strategies are running roughly eight to twelve percent depending on the carrier and index. If the index goes down, you typically credit zero — you don’t lose principal, but you also don’t earn anything that year.
So the trade-off is you give up some upside in strong years in exchange for not participating in the losses.
That’s the core trade-off. And FIAs are genuinely more complex — there are caps, participation rates, different crediting methods, optional income riders. They’re not bad products, but they’re harder to evaluate than a MYGA where you just look at the rate and the term.
So if someone’s considering a FIA, they really need to have a thorough conversation with a licensed agent before they sign anything.
More so than with a MYGA, honestly. There are just more moving parts. I’ve seen people buy FIAs thinking they understood the cap rate and then be surprised by how the crediting method affected their actual interest in a given year.
Alright, let’s land this plane with the practical checklist — like, if someone is actually sitting down to compare MYGA options, what are the things they need to look at beyond just the headline rate?
First thing: make sure you know whether the interest compounds or is calculated on a simple-interest basis. Two MYGAs with the same stated rate can produce different outcomes over the term if one compounds and the other doesn’t.
Oh, that’s sneaky. I don’t think most people would think to check that.
Most don’t. Second: check the carrier’s AM Best rating and Comdex score. Don’t skip this just because the rate looks great. Third: understand the full surrender schedule — what does it cost to exit in year one, year two, year three, and so on. And does the contract have a market-value adjustment?
Fourth would be state availability, right? Not every carrier is licensed in every state.
Exactly. Your agent can confirm what’s actually available where you live and for your deposit amount, because some carriers have minimum deposits that vary by product.
And then taxes — because people sometimes hear ‘tax-deferred’ and think ‘tax-free,’ and those are very different things.
Really important distinction. MYGA growth is tax-deferred, not tax-free. When you withdraw, it’s taxed as ordinary income. And if you’re under fifty-nine and a half and you take money out, you’re potentially looking at a ten percent IRS penalty on top of the income tax — same as an early IRA withdrawal.
So MYGAs are really designed for money you don’t need to touch until retirement age.
For the bulk of the deposit, yes. The ten percent free-withdrawal provision helps, but the tax structure is built around the assumption that you’re holding this as a retirement accumulation vehicle.
You know what I keep coming back to is the laddering idea — because I think for someone who’s nervous about committing to one term, spreading across multiple terms actually solves a lot of the liquidity anxiety.
It does. The classic approach is you split your deposit across, say, a three-year, a five-year, and a seven-year. Each one matures at a different point, so you’re not waiting the full seven years to have access to any of it. And if rates are higher when the three-year matures, you can roll it into whatever looks good at that point.
And the ten-year MYGA specifically seems to come up a lot in the context of IRAs.
Yeah, because inside an IRA the tax-deferral benefit of the MYGA is somewhat redundant — the IRA already provides tax deferral — so the main advantage is the rate protection and the predictability. A ten-year MYGA inside an IRA can serve as a really stable anchor in a laddering strategy, especially if you’re in or near retirement and you want to know exactly what that portion of your money is doing.
Okay, I think the thing I want to leave people with — and this is what I wish I’d said to my aunt more clearly — is that the rate is the starting point, not the ending point.
That’s well put. The rate gets your attention, and it should — these are genuinely attractive rates by historical standards. But the carrier’s financial strength, the contract terms, the surrender schedule, the tax implications for your specific situation — all of that has to go into the decision. And honestly, a good licensed agent can pull current rates from multiple carriers, explain the contract differences, and help you figure out what term and structure actually fits your plan.
And that conversation doesn’t cost you anything.
Right. Agents are compensated by the carrier, not by the buyer. So there’s no reason not to have that conversation before you commit — especially on a deposit that might be a significant chunk of your retirement savings.
I’m going to call my aunt after we finish recording. I feel like I owe her a better answer than I gave her in July.
Tell her to check the Comdex score. She’ll think you’re very impressive.
Ha — I’ll take it. Alright, one last thing I want to flag for anyone listening: everything we’ve talked about today is educational. We’re not making product recommendations for your specific situation — that’s what a licensed agent is for, and that conversation needs to account for your full financial picture, your tax bracket, your state, your timeline. We’re just trying to make sure you walk into that conversation knowing the right questions to ask.
And knowing what the answers should actually mean. Because there’s a big difference between understanding that a Comdex score exists and knowing what a score of sixty versus ninety actually implies for your decision. The more you understand going in, the better that conversation with an agent is going to go.
Couldn’t agree more. Alright, Caleb — I think we covered a lot of ground today.
We did. And rates are moving, so if something we quoted today looks different by the time you’re listening — that’s just the nature of this market. Always get a current quote from a licensed agent before you make any decisions.