What Is the Difference Between a CD and a Multi-Year Guaranteed Annuity (MYGA)?

Drew Eddinger
Jan 7
4 min read

Certificates of deposit (CDs) and multi-year guaranteed annuities (MYGAs) are often compared for one simple reason: both offer fixed, guaranteed returns with no market risk.

But while they may look similar on the surface, they are built on different legal structures, come with different rules, and are best suited for different types of savers.

If you’re deciding where to place longer-term savings, this guide will help you understand the differences, so you can choose the option that fits your goals today.

Quick Answer (TL;DR)

CDs are bank products designed for short- to mid-term savings with simple access rules.
MYGAs are insurance products designed for longer-term, tax-deferred growth, often used in retirement planning.

Both offer guaranteed rates, but the trade-offs matter.

What Is a Certificate of Deposit (CD)?

A certificate of deposit is a bank or credit-union savings product where you agree to lock in your money for a fixed period in exchange for a fixed interest rate.

Key Characteristics

Fixed interest rate
Fixed term (e.g., 3 months to 5 years)
Early withdrawal penalties apply
FDIC or NCUA insured (up to limits)
Interest is typically taxable each year (in non-retirement accounts)

Best Use Cases

Short- to medium-term savings
Known future expenses
Conservative savers who want simplicity
Cash that may need to stay accessible

CDs are straightforward, transparent, and familiar to most savers.

What Is a Multi-Year Guaranteed Annuity (MYGA)?

A multi-year guaranteed annuity is a fixed annuity issued by an insurance company. Like a CD, it offers a guaranteed interest rate for a set number of years, but it operates under insurance rules, not banking rules.

Key Characteristics

Guaranteed fixed rate for a set term (often 3–10 years)
Tax-deferred growth (taxes due only when withdrawn)
Issued by insurance companies
Surrender charges apply during the guarantee period
Backed by the insurer’s financial strength (not FDIC-insured)

MYGAs are often used as CD alternatives for longer-term or retirement-focused money.

Side-by-Side Comparison

Feature	Certificate of Deposit	MYGA
Product Type	Bank deposit	Insurance contract
Rate Type	Fixed	Fixed
Term Length	Short to medium	Medium to long
Access to Funds	Limited, penalty applies	Limited, surrender charges
Tax Treatment	Taxed annually	Tax-deferred
Insurance	FDIC / NCUA	State guaranty associations
Best For	Liquidity + simplicity	Long-term, tax-efficient growth

The Biggest Difference: Taxes

One of the most important, and most overlooked, differences is how interest is taxed.

CDs

Interest is typically taxed each year, even if you don’t withdraw it.
This can reduce your effective return, especially in higher tax brackets.

MYGAs

Interest grows tax-deferred.
Taxes are only due when money is withdrawn.
This can significantly improve after-tax results for long-term savers.

For investors who don’t need immediate access, tax deferral can be a powerful advantage.

Liquidity and Access Considerations

Neither CDs nor MYGAs are designed for frequent withdrawals, but the rules governing access are very different.

CDs

Early withdrawal penalties are usually clearly defined and limited.
Some CDs offer no-penalty or short-term options.
No age-based tax penalties apply.

MYGAs

Surrender charges typically apply during the guarantee period and decline over time.
Most MYGAs allow limited annual penalty-free withdrawals (often up to 10%).
If withdrawals are taken before age 59½, the IRS may impose a 10% federal tax penalty on the taxable portion of the withdrawal, in addition to ordinary income taxes.
This federal penalty is separate from any insurance company surrender charges.

Important: MYGAs are best suited for long-term or retirement-focused money, not funds you may need early access to.

Which One Typically Pays More?

MYGAs often offer higher rates than CDs of similar duration, especially at longer terms. This is because:

Insurance companies can invest longer term
MYGAs are designed for committed capital
Tax deferral enhances effective yield

However, higher yield comes with less flexibility, so the trade-off must be intentional.

Common Mistakes to Avoid

❌ Using MYGAs for Emergency Funds

They are not designed for short-term access.

❌ Ignoring Taxes When Comparing Rates

A slightly lower MYGA rate may outperform a CD after taxes.

❌ Assuming “Guaranteed” Means the Same Thing

CDs are backed by federal deposit insurance.MYGAs rely on insurer strength and state protections.

❌ Overlooking Age-Based Tax Penalties on MYGAs

Withdrawals from MYGAs before age 59½ may trigger a 10% IRS early-withdrawal penalty on earnings, in addition to regular income taxes and any surrender charges. This makes MYGAs inappropriate for short-term or emergency savings.

How to Choose Between a CD and a MYGA

Ask yourself these three questions:

1. When will I need this money?