A multi-year guaranteed annuity (MYGA) is often recommended to pre-retirees to create an income stream that doesn’t depend on market performance. CDs are also touted for their security and present many of the same advantages. However, these two types of retirement vehicles are not exactly the same. They differ not only in benefits but also in potential challenges for those looking to secure their legacy as they prepare for the next phase of their lives.
This article compares MYGAs and CDs to help people achieve stable retirement growth by choosing the account with the most advantages for their specific situation. These two options are also not mutually exclusive, meaning both could be a part of a holistic retirement profile for individuals willing to accept the responsibilities.
Comparing MYGAs & CDs Side-By-Side
MYGAs and CDs can best be compared with a side-by-side assessment of their main features, which we’ve compiled in this table:
| Feature | MYGAs | CDs |
| Rate and Term | Contractually set accumulation | Stated rate |
| Tax Treatment | Tax-deferred* | Taxable annually |
| Liquidity | Subject to surrender schedules | Early-withdrawal penalties |
| Planning Role | Retirement-aligned timeline and future income | Short, known time horizons and parking cash |
*While MYGA withdrawals are usually tax-deferred, the annuity could be qualified or non-qualified, which means the earnings are taxed as income when withdrawn but the principal may be returned tax-free (non-qualified). CDs are generally taxed annually for non-qualified accounts. For specifics about the role of taxes in MYGA withdrawals, speak with an accredited tax professional who has full knowledge of your financial situation.
Turning Dollars Into Future Income
MYGAs and CDs differ in how they turn applied dollars into future income.
How MYGAs Work
With a MYGA, money placed in the account grows at a set interest rate for the contract term (usually 3-7 years). The rate will not change during that term.
Once the term is over and the annuity has “matured,” there are several options: rollover to another annuity at a new rate, transition to systematic withdrawals as an income stream, or annuitize it into periodic payments. This makes a MYGA an income product, unlike a CD, which is a savings product.
How CDs Work
A CD pays a set rate for the term of the deposit, which can be as short as a few months but can also last 5+ years. The rate depends on market conditions, bank promotions, and the contract length. Any interest gained is taxed as income each year, rather than at withdrawal. When a CD matures, it can be rolled into a new CD or withdrawn to meet cash needs.
Laddering Strategies
Both MYGAs and CDs can be laddered to stagger growth, but they work differently. Multiple MYGAs can be staggered, as long as the rate-reset is timed properly. If interest rates drop, only the annuity nearest to renewal would be affected.
CD laddering achieves the same goal in a different way through regular liquidity by spreading deposits over multiple maturity lengths. For example, multiple CDs of 6, 12, and 24 months can be maintained at different set rules at the same time.
Who Might Prefer Which Product
Deciding when or if a MYGA or CD ladder is the right choice ultimately depends on the individual’s situation. The basic rule is that MYGAs can provide a staggered strategy for long-term retirement income while CDs provide greater liquidity for short-term gains. In other words, MYGAs may be a better fit for risk-averse pre-retirees who want tax-deferred growth to bridge to future income. CDs may be better for short-term savers with specific cash dates who prioritize simplicity.
Important Benefits in Plain Terms
In both cases, the benefits of these accounts include providing predictable growth, simpler budget planning, clear up-front terms, and an ability to integrate another source of income with Social Security into a more complete plan.
Tradeoffs To Understand
Importantly, these benefits also have some tradeoffs. A MYGA may include surrender charges that limit excess withdrawals, a risk of a rate decrease at renewal depending on market conditions, or depreciation due to inflation. A CD may also have early-withdrawal penalties, a reinvestment risk, and inflation risk.
In either case, the financial health of the insurance company who issues the account is a risk factor, but this impacts MYGAs more since the accounts are often for longer terms and are not FDIC-insured like CDs.
How Matador Helps You Decide
Matador helps pre-retirees decide on the annuities and supplemental retirement funds that make sense in their situation based on map timelines, cash-flow needs, and priorities. Our strategy is to compare MYGA and CD options in each individual or couple’s situation, considering the possible benefits of laddering, and aligning the choices with their retirement milestones.
To make sure the retirement plan continues to match expense needs and income projections, we conduct annual reviews that include individual life changes and rate changes at maturity, adjusting their plan accordingly.
Compare Retirement Options With an Experienced Planner
Choosing between MYGAs, CDs, and other retirement supplements can be difficult without expert guidance. At Matador Insurance, we take a holistic approach to customize retirement plans for each situation, providing pre-retirees with a side-by-side, numbers-first review of the options, matched to their individual timelines.
Contact our team and schedule a consultation today to learn which retirement accounts make the most sense in your current (and future) situation.