Wondering why a MYGA is better than a CD? We’ll explain how they’re alike, and how they’re different. Both are financial products designed to sock away money for a period of time and grow interest while you wait. But we’ll show you why you have more flexibility – and the possibility to earn more interest – with a MYGA.
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What’s the Difference Between a CD and an Annuity?
Let’s start with the basics:
- CD: A certificate of deposit (CD) is a financial product offered by banks and other financial institutions. When you buy one, you agree to give the institution a certain amount of money for a certain period of time. In return, the bank will pay you interest on that money while they hold onto it. At the end of your CD, you get the original deposit plus all the interest.
- Annuity: An annuity is a financial product offered by life insurance companies. In its most common form, it provides a stream of retirement income you can’t outlive. With an income annuity, you pay into your annuity over time or provide a single lump sum of cash. The insurer pays interest on this cash, and pays you a certain amount every month for as long as you live. But that’s only one kind of annuity. The kind we’re interested in right now – a multi-year guaranteed annuity (MYGA) functions more like a CD. When you buy one, you deposit a certain amount of money with the insurer for a certain period of time. The insurer pays interest on that money. When the term is up, you get both your original deposit and the interest.
Both a CD and a MYGA are places you can sock away retirement savings and earn extra interest while doing so. But which one is better? We’ll take a look at rates and the best ways to use each product below.
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Sample CD Rates vs. Sample MYGA Rates
Since the whole point of a CD and a MYGA are to earn interest on your savings, let’s start by looking at a few sample rates. Banks, insurers, and other financial institutions set their own rates for CDs and annuities. They’re based on prevailing national rates, but vary quite a bit based on the product and the seller.
Here are a few sample CD rates:*
|APY (Interest Rate)
|Bank of America
That’s quite a range, isn’t it? Bank of America and Chase are probably names you’re familiar with – they offer lots of branches, lots of account types, and you may already do business with them. But their interest rates for CDs are downright terrible.
On the other hand, lesser-known names like LendingClub and MyBankingDirect offer much higher interest rates…but you’ll have to put your money in an online-only bank. Many of my clients don’t like that idea. They want to be able to talk to someone in person in a local branch if they have questions or want to access their money. There’s a clear trade-off happening here: convenient access to your money OR the highest available interest rates.
Now, let’s look at a few sample MYGA rates:*
|APY (Interest Rate)
|Americo Platinum Assure
|Athene MaxRate 3
|FG Guarantee – Platinum
|FG Guarantee – Platinum
|EquiTrust Certainty Select
MYGA rates consistently top CD rates – and because of the longer term lengths, they’ll pay out that high interest rate for longer, too. Also, notice that the FG products have different term lengths with slightly different interest rates. Different insurers may offer higher rates for longer terms – but that’s not a guarantee. That’s why it pays to shop around. I can help you find the highest rate for the length of time that best meets your needs!
➡️ Rather talk to a real person about MYGAs? That’s why I’m here! Click the button below to schedule a call and let me give you personalized, one-on-one help.Schedule a Call
Which One Is Right for You?
Should you choose a CD or a MYGA? The right choice for you will depend on your financial goals. Here are a few things to consider:
- Interest rate: Only focused on returns? MYGAs are going to give you a little bit more. It might just be 1%, but if you have a significant amount of money to deposit, that 1% could mean a lot, especially when it compounds over time. For example, if you put $50,000 in a 10-year MYGA at 6% interest compounded annually, you’ll have $89,542.38 at the end of your term. It adds up to more than you think! You can play around with your own estimates using the compound interest calculator at Investor.gov.
- Liquidity: How much of your money do you want or need access to? With a CD, you can’t pull out any of that money during the term without a penalty. With a MYGA, you’re usually allowed to pull out up to 10% of your cash without a penalty. If liquidity is something you’re interested in, let me know and I’ll make sure to shop only policies with that 10% allowance for you.
- Term length: How long do you want to lock in that interest rate? It depends on your need for liquidity, too. If this is money you don’t need to live on or need to have available to invest in other opportunities, a MYGA offers the easiest way to earn the maximum amount of interest for the longest period of time.
- Retirement: How close are you to retirement? With a MYGA, you can easily convert your cash into a stream of income when your term is up. That’s what an annuity is designed to do! But you don’t have to pull all your money out, either. You have the option to renew your contract (at the current interest rate offered by the insurer), or roll that cash over into a totally different annuity (a good move if you find a higher interest rate elsewhere).
That’s a lot to consider, I know! But if you just have money sitting in a savings account, earning next to nothing, consider a MYGA as an easy way to boost your interest earnings for very little effort. Plus, it’s a great hedge against a volatile stock market to have at least some of your savings earning a guaranteed locked-in interest rate for as long as possible. Think of a MYGA as making your money work smarter, not harder!
➡️ Want to learn more about MYGAs and see today’s rates? I can help! Click the button below to schedule a call and let me give you personalized, one-on-one help.Schedule a Call
Always consult your accounting, legal, and tax advisors before implementing any recommendations. This material does not constitute tax, legal, or accounting advice.