MYGA Rates May 2026: Best Multi-Year Guaranteed Annuity for Tax-Deferred Savings

Key Takeaways

• MYGA rates in May 2026 range from 4.5% (10-year) to 5.3% (3-year), with 5-year terms offering the best balance of rate and flexibility at 4.9%–5.1%
• Tax deferral is the #1 advantage — earnings compound tax-free until withdrawal, which can add 0.5–1.2% in effective annual return compared to a taxable CD at the same nominal rate
• Surrender charges are steep but predictable — typically 7%–10% in year one, declining by 1% per year; early withdrawal can erase your interest advantage entirely
• MYGA interest is taxed as ordinary income (not capital gains) upon withdrawal, so these are best held in non-qualified accounts by investors in lower tax brackets or those deferring to a lower-bracket year
• No FDIC insurance, but state guaranty associations cover $250,000–$500,000 per insurer per state — spread large sums across multiple carriers to stay within limits
• A 1035 exchange at maturity lets you roll into a new MYGA or different annuity tax-free, avoiding a taxable event entirely

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

A Multi-Year Guaranteed Annuity is a type of fixed annuity that guarantees a specific interest rate for a set period — typically 2 to 10 years. Unlike variable annuities where returns fluctuate with the market, or indexed annuities tied to a benchmark, a MYGA’s rate is locked in at purchase and does not change.

Think of it as a CD from an insurance company instead of a bank, but with tax-deferred growth and no 1099 until you actually take money out.

How MYGAs Work

1. You make a single premium payment (typically $10,000 minimum, some start at $5,000)
2. The insurer guarantees a fixed interest rate for the entire term (e.g., 5.0% for 5 years)
3. Interest compounds tax-deferred — no annual 1099, no tax until withdrawal
4. At maturity, you choose: take the money (taxable), annuitize (spread taxation), or 1035 exchange into another annuity (tax-free)
5. Early withdrawals face surrender charges that decrease over time, plus a 10% IRS penalty if you’re under 59½

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MYGA Rates for May 2026: Current Landscape

As of May 2026, MYGA rates remain competitive despite the Fed having begun rate cuts in late 2025. Here’s a snapshot of the current rate environment:

Rate Tiers by Term Length

Term	Top Rate	Average Rate	Best For
2-year	5.00%–5.15%	4.70%	Short-term parking, CD replacement
3-year	5.10%–5.30%	4.85%	Best rates available, peak of the curve
5-year	4.90%–5.10%	4.75%	Balanced rate + flexibility
7-year	4.70%–4.85%	4.55%	Longer lock-in, moderate rates
10-year	4.50%–4.65%	4.30%	Long-term guaranteed income floor

How MYGA Rates Compare to CDs (May 2026)

Feature	MYGA	CD
Top 5-year rate	5.10%	4.40%
Tax deferral	✅ Yes	❌ No
FDIC/State coverage	State guaranty ($250K–$500K)	FDIC ($250K)
Early withdrawal	Surrender charges (declining)	Penalty (typically 3–6 months interest)
1099 timing	At withdrawal/maturity	Annually
Minimum deposit	$5,000–$10,000	$500–$1,000

The tax advantage alone can add 0.5%–1.2% effective annual return for someone in the 22%–32% federal tax bracket, depending on the holding period and state taxes.

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Tax Advantages of MYGAs: The Compound Effect

Tax Deferral Math

Here’s how tax deferral compounds over time for a $100,000 MYGA at 5.0% vs. a taxable CD at 4.4% for someone in the 24% federal tax bracket:

MYGA (5.0%, tax-deferred for 5 years):

• Year 5 value: $127,628
• Tax on withdrawal: ($127,628 - $100,000) × 0.24 = $6,631
• After-tax value: $120,997

CD (4.4%, taxed annually at 24%):

• After-tax effective rate: 4.4% × (1 - 0.24) = 3.34%
• Year 5 value after annual taxes: $117,920

MYGA advantage: $3,077 more after-tax income over 5 years on the same $100,000.

The longer you hold and the higher your tax bracket, the bigger the MYGA advantage grows.

Ordinary Income Tax on Withdrawal

When you withdraw from a MYGA, earnings are taxed as ordinary income (not capital gains). This means:

• LIFO taxation applies: earnings come out first, so early withdrawals are almost entirely taxable
• No step-up in basis at death for non-qualified MYGAs (unlike some other assets)
• 10% early withdrawal penalty if under age 59½ (with limited exceptions)

Tax Strategy: Pair with Lower-Income Years

The smartest MYGA strategy is to time your withdrawal or maturity for a year when your income is lower:

• Pre-retirement bridge: Buy a 5-year MYGA at age 57, let it mature at 62 when you’ve retired and dropped to the 12% bracket
• Sabbatical year: Let a MYGA mature during a gap year when you have minimal other income
• Roth conversion pairing: Use MYGA maturity funds to pay tax on a Roth conversion in a low-income year

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Surrender Charges: The Catch You Must Understand

Every MYGA has a surrender charge schedule that penalizes early withdrawals. Here’s a typical 5-year MYGA schedule:

Year	Surrender Charge	Free Withdrawal
1	9%	10% of premium
2	8%	10% of premium
3	7%	10% of premium
4	6%	10% of premium
5	5%	10% of premium
6+	0%	Full access

Key Points About Surrender Charges

• Most MYGAs allow 10% free withdrawal per year without surrender charges (check your specific contract)
• Surrender charges are on the total contract value, not just earnings — withdrawing early in year one could cost you 9% of your principal
• Nursing home and terminal illness waivers are common — many contracts waive surrender charges if you’re confined to a nursing home or diagnosed with a terminal illness
• Market value adjustment (MVA) may apply on some contracts — if rates have risen since purchase, the MVA can reduce your payout even after surrender charges

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Safety: What Happens If the Insurance Company Fails?

MYGAs are not FDIC insured. Instead, they’re backed by:

1. The insurance company’s general account — your first line of protection
2. State guaranty associations — each state covers $250,000–$500,000 per insurer per person (varies by state)

How to Protect Yourself

• Check the insurer’s financial strength rating: Aim for A- (AM Best) or A1 (Moody’s) or higher
• Spread large deposits across multiple insurers: If you have $800,000, split it into 3–4 MYGAs from different highly-rated carriers
• Use your state’s guaranty association limit as a ceiling per carrier
• Avoid obscure or thinly-capitalized insurers offering rates 0.5%+ above the market — that’s often a red flag

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MYGA vs. Other Fixed-Income Options

MYGA vs. Treasury Bonds

Factor	MYGA	Treasury
5-year yield	4.9%–5.1%	4.0%–4.3%
Tax deferral	✅	❌
State income tax	Exempt	Exempt
Liquidity	Surrender charges	Can sell on secondary market
Safety	State guaranty	Full US government backing

Winner: MYGA for tax-deferred growth; Treasuries for liquidity and absolute safety.

MYGA vs. I-Bonds

Factor	MYGA	I-Bonds
Purchase limit	None	$10,000/year
Current rate	5.0% fixed	~3.1% composite
Tax deferral	✅ Until withdrawal	✅ Until redemption
Inflation protection	❌	✅ (inflation component)
Liquidity	Surrender charges after year 1	Locked 1 year, 3-month penalty after

Winner: MYGA for large deposits and known fixed returns; I-Bonds for inflation hedging within annual limits.

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Who Should (and Shouldn’t) Buy a MYGA in 2026

✅ Good Candidates

• Pre-retirees (ages 50–65) seeking safe, tax-deferred growth for money they won’t need for 3–10 years
• High-income earners in the 32%+ bracket who want to defer interest income to retirement
• CD ladder holders looking to upgrade yields and add tax deferral
• Conservative investors who want guaranteed returns without market risk
• Estate planners using MYGAs as a fixed-income component alongside riskier assets

❌ Poor Candidates

• Anyone who might need the money before maturity — surrender charges can be devastating
• Investors in the 0%–12% bracket — tax deferral provides minimal benefit
• People already maxing out tax-advantaged accounts (401k, IRA, HSA) — fill those first
• Those seeking inflation protection — MYGA rates are fixed and don’t adjust
• Investors under age 59½ who may need access — the 10% early withdrawal penalty applies on top of surrender charges

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Step-by-Step: Buying a MYGA in 2026

1. Determine your time horizon — when can you realistically commit money without needing it?
2. Shop rates across multiple insurers — use an annuity marketplace or independent agent (never just one carrier)
3. Check the insurer’s AM Best rating — insist on A- or higher
4. Review the surrender charge schedule — make sure the free withdrawal amount (typically 10%/year) covers your potential needs
5. Verify your state’s guaranty association limit — stay within it per carrier
6. Complete the application — minimal underwriting (no medical exam), just identification and funding
7. Fund the MYGA — via check, wire transfer, or 1035 exchange from an existing annuity
8. Set a maturity reminder — 60 days before maturity, you’ll need to decide: withdraw, annuitize, or 1035 exchange

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FAQ

What is a MYGA and how is it different from a regular fixed annuity?

A MYGA (Multi-Year Guaranteed Annuity) is a specific type of fixed annuity that locks in a guaranteed interest rate for a set term (2–10 years). Regular fixed annuities may only guarantee a rate for 1–3 years before the insurer can adjust it. MYGAs provide rate certainty for the entire contract period.

Are MYGA earnings taxed every year?

No. MYGA earnings are tax-deferred — you pay no taxes on the growth until you withdraw funds or the contract matures. This is a major advantage over CDs and bonds, which generate annual 1099s. When you do withdraw, earnings are taxed as ordinary income at your then-current bracket.

Can I withdraw money from a MYGA before maturity?

Yes, but with limitations. Most MYGAs allow a free withdrawal of 10% of premium per year without penalty. Amounts beyond that are subject to surrender charges (typically 9% in year one, declining by 1% annually). If you’re under 59½, the IRS also imposes a 10% early withdrawal penalty on earnings.

Is a MYGA safer than a CD?

A CD is backed by FDIC insurance (up to $250,000 per depositor per bank), while a MYGA is backed by the insurance company’s financial strength and state guaranty associations ($250,000–$500,000 per insurer per state). Both are very safe for amounts within coverage limits, but FDIC is generally considered the stronger backstop.

What happens when my MYGA matures?

At maturity, you have three options: (1) take a lump sum (earnings are taxed as ordinary income), (2) annuitize the contract for guaranteed lifetime income (taxes spread over your life expectancy), or (3) 1035 exchange into a new MYGA or different annuity (completely tax-free). The 1035 exchange is often the smartest move if you don’t need the cash.

Should I choose a 3-year or 5-year MYGA in May 2026?

In the current rate environment (May 2026), 3-year MYGAs offer the highest rates (5.1%–5.3%) because the yield curve is slightly inverted. If you want maximum yield and can commit for 3 years, that’s the sweet spot. The 5-year term (4.9%–5.1%) is only slightly lower and gives you longer rate protection, which may be better if you expect rates to decline further in 2026–2027.

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Internal Resources

• Annuity Payout Options Explained — compare all annuity payout methods and find the right one for your situation
• 1035 Exchange Annuity Tax Rules 2026 — how to roll your MYGA into a new annuity at maturity without triggering taxes
• Annuity Surrender Charge Tax Deduction Guide 2026 — understand the tax treatment of surrender charges
• Fixed Annuity vs Fixed Indexed Income Choices — MYGA vs indexed annuity comparison for conservative investors
• Annuity vs Bond Ladder Income Comparison — detailed breakdown of these two retirement income strategies

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