MYGA vs. CD: The Math Most Banks Don't Want You to See

The Rate on the Brochure Isn't the Rate You Keep

Walk into any bank and the CD rate is front and center. Bold. Simple. Guaranteed.

What's missing? The tax bill that arrives every April — on interest you may not have even touched.

MYGAs (Multi-Year Guaranteed Annuities) solve that problem. Same guaranteed rate structure as a CD. Same fixed term. Very different math.

How the Tax Difference Works

With a CD, the IRS treats your interest as ordinary income in the year it's earned — whether you withdraw it or not. That's called phantom income. You owe taxes on money still sitting in the account.

With a MYGA, taxes are deferred until withdrawal. Every dollar of interest compounds at the full rate, year after year, untouched by the IRS until you decide to take the money.

A Real Example: $100,000 Over 5 Years

Let's say both products offer a 5.00% annual rate. You're in the 22% federal tax bracket.

CD (taxable each year):

After 5 years, effective after-tax value: approximately $119,907

MYGA (tax-deferred):

All interest compounds at the full 5.00%. After 5 years: $127,628

You pay taxes when you withdraw — but you've had years of additional compounding on the money that would have gone to taxes.

Difference: over $7,700 in your favor — at identical rates.

If the MYGA rate is even modestly higher than the CD? The gap widens further.

When a CD Might Still Win

Tax deferral isn't always the deciding factor:

• You're in a low bracket now and expect a higher bracket later
• You need regular interest income to cover living expenses
• You're over 59½ and plan to withdraw soon — the deferral benefit compresses
• The CD rate is significantly higher and the difference outweighs the tax benefit

That said, MYGA rates have been consistently competitive with or above CD rates for the past several years — often from carriers rated A or better by AM Best.

What to Watch for in a MYGA

Not all MYGAs are identical. Before you commit:

Surrender schedule — Most have a surrender charge period matching the term (3, 5, 7, or 10 years). Early withdrawals may incur a penalty.

Free withdrawal provision — Many carriers allow 10% of account value per year penalty-free. Confirm the specific terms.

Renewal rate — At maturity, the carrier will offer a renewal rate. You're never locked in — you can always move the money at term end.

Carrier ratings — Your state guaranty association provides a backstop (limits vary by state), but starting with a financially strong carrier matters.

The Bottom Line

A MYGA isn't a replacement for a CD in every situation. But for money you don't need to touch for three to ten years, the tax-deferral advantage is real, calculable, and often substantial.

Run the math for your rate, your bracket, and your timeline — and compare what you actually keep, not just what the brochure says.