Multi-year guaranteed annuity (MYGA) vs. CD: Where should you park cash for a guaranteed return?

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<p>If you’re looking for a safe place to keep your savings — and lock in a guaranteed interest rate —  there are two popular options to consider: <a href="https://finance.yahoo.com/personal-finance/banking/article/best-cd-rates-201308688.html">certificates of deposit</a> (CDs) and multi-year guaranteed annuities (MYGAs). Both offer fixed interest rates for a set period of time, making them appealing to savers who want predictable earnings without the volatility of the stock market.</p>
<p>However, while MYGAs and CDs seem very similar on the surface, these two financial products work quite differently. Understanding the key differences between a MYGA vs. CD can help you decide which option better fits your savings goals and timeline.</p>
<h2>What is a multi-year guaranteed annuity (MYGA)?</h2>
<p>A <a href="https://finance.yahoo.com/personal-finance/banking/article/what-is-a-multi-year-guaranteed-annuity-myga-144159395.html">multi-year guaranteed annuity</a> is an insurance product that allows you to earn a guaranteed interest rate over a set period of time. MYGAs are considered a type of fixed annuity; they’re usually used for retirement savings.</p>
<p>MYGA contracts, which are available through some insurance companies, usually last anywhere from three to 10 years. The rates on MYGAs can range up to 7.5% or higher, depending on the issuer and how much money you deposit. However, if you withdraw your money early, you may face penalties as high as 10%.</p>
<p>One major advantage that MYGAs have over CDs and some other alternatives is that the growth is tax-deferred. That means instead of having to pay taxes on the interest you earn each year, you pay when you make a withdrawal. As a result, your money has more time to gain <a href="https://finance.yahoo.com/personal-finance/banking/article/what-is-compound-interest-121302430.html">compound interest</a>.</p>
<p>Read more: <a href="https://finance.yahoo.com/personal-finance/banking/comparison/fixed-rate-vs-variable-rate-203828161.html">Fixed rate vs. variable rate: What's the difference, and why does it matter?</a></p>
<h2>What is a CD?</h2>
<p>A <a href="https://finance.yahoo.com/personal-finance/banking/article/certificate-of-deposit-what-is-how-work-153944999.html">certificate of deposit</a> (CD) is a type of deposit account that can be found at most banks and credit unions. CDs also allow you to earn a fixed interest rate over the full term, which can be anywhere from a few months to several years long. Today, the <a href="https://finance.yahoo.com/personal-finance/banking/article/best-cd-rates-201308688.html">best CD rates</a> are about 3%-4% APY.</p>
<p>Similar to MYGAs, you will typically face a penalty if you want to withdraw money from your CD before the account reaches maturity. But with CDs, the <a href="https://finance.yahoo.com/personal-finance/banking/article/cd-penalty-for-early-withdrawal-worth-it-222243688.html">early withdrawal penalty</a> is usually equivalent to several months’ worth of the interest you've earned on the account.</p>
<p>Additionally, you <a href="https://finance.yahoo.com/personal-finance/taxes/article/how-to-avoid-taxes-on-cd-interest-162718276.html">pay taxes on the CD interest</a> you earn each year.</p>
<p>Read more: <a href="https://finance.yahoo.com/personal-finance/banking/comparison/fixed-annuity-vs-cd-161858539.html">Fixed annuities vs. CDs: Which is better for your retirement savings?</a></p>
<h2>MYGAs vs. CDs: Key differences</h2>
<p>MYGAs and CDs have a lot in common. Both give you guaranteed returns with a low risk of loss. The main way you can end up losing money with a CD or a MYGA is if you make an early withdrawal and incur fees.</p>
<p>With that said, a MYGA typically requires a larger and more long-term commitment. While the minimum deposit amount on MYGAs is often somewhere between $5,000 and $25,000, many CDs start at $500. Additionally, MYGA contracts usually last a minimum of three years, while CD terms usually start at just a few months.</p>
<h2>Which is better: MYGAs or CDs?</h2>
<p>Whether a MYGA or CD is best for you depends on your situation. Here's what you need to know in order to choose between the two accounts.</p>
<h3>MYGA: Best for large deposits with longer savings timelines</h3>
<p>If you have roughly $5,000 or more in savings that you don't need access to for at least a few years, a MYGA is likely your best option. Here's what makes them a better choice than CDs in these circumstances:</p>
<ul>
<li> <p class="yf-1fy9kyt">MYGA rates can be significantly higher than CD rates.</p></li>
<li> <p class="yf-1fy9kyt">Interest is tax-deferred, so you don't pay taxes until you make a withdrawal.</p></li>
</ul>
<p>Both of these features mean your money can grow faster in a MYGA than a CD. However, if you’re under age 59½, the IRS may charge a 10% penalty on any earnings you withdraw.</p>
<p>While you may be able to earn higher returns by investing elsewhere, such as the stock market, it's difficult to earn near 7% with such a low-risk account. For that reason, MYGAs can be a great option for people who are retired or nearing retirement and can't risk a market downturn.</p>
<h3>CDs: Best for short- to mid-term savings</h3>
<p>A CD is a better option than a MYGA when you're saving a smaller amount or you're saving for a shorter time frame.</p>
<p>If you're setting money aside for a short- to mid-term goal, such as buying a car within the next two years, a CD can be a great choice. Investing in a CD will typically earn you much higher rates than a checking account or traditional savings account. Plus, CDs can even be competitive in comparison to some <a href="https://finance.yahoo.com/personal-finance/banking/article/best-high-yield-savings-account-171334498.html">high-yield savings accounts</a> (HYSAs). And you'll still have penalty-free access to your money at a predetermined time.</p>