10 Nov MYGAs vs. Fixed Annuities: What’s the Difference?
MYGAs vs. Fixed Annuities: If you’re confused about the difference, you aren’t alone.
Annuities can be confusing. There are so many types, and, even then, contracts can vary within the same type of annuity.
And, it doesn’t help that they are typically a financial product consumers are sold.
Think about it: Have you ever woken up one morning and said, I think I’ll buy an annuity today?
No. What usually happens is you have an old 401(k) you want to roll over or have money sitting in an account somewhere doing nothing for you.
So, you call a financial advisor, explain your situation, and then are offered any of the various types of annuities as a solution for growing your money and ensuring you have enough income come retirement.
The solution sounds good to you, so you sign the contract, and the money is transferred into an annuity.
But do you really know what you just invested your money in? Most Americans don’t – just look at the stat below.
If you’re looking at purchasing an annuity and are wondering what’s the difference between MYGAs vs. Fixed Annuities, keep reading to find out more.
MYGAs vs. Fixed Annuities: The Key Difference
A multiyear guaranteed annuity, or MYGA, is a type of fixed annuity that offers principal protection and a guaranteed fixed interest rate for a certain period, usually from 3 to 10 years.
A fixed annuity offers you principle protection and a guaranteed rate of return for a specific period of time.
The key difference between MYGAs vs. Fixed Annuities is the terms of the guaranteed rate.
A MYGA annuity rate is guaranteed for the full contract term. It’s exactly as the title suggests: a multiyear guarantee of a set interest rate for a set amount of time.
Fixed annuities offer a similar guaranteed rate, except that rate may go up or down after the first year.
Let’s say you have a 10-year 5% fixed annuity and a 10-year 5% MYGA.
The 10-year MYGA will offer the 5% throughout the 10-year period.
Your fixed annuity contract may only guarantee the 5% rate for the first 3 years. Or 5% for the first year, but then drop down the remaining years.
What you receive interest wise from your fixed annuity depends on the contract.
This is why it’s imperative you do your homework, fully understand the investment vehicle, and carefully read annuity contracts before you sign them.
MYGAs vs. Fixed Annuities: Similarities
Again, MYGAs are a type of fixed annuity. The similarities are as follows:
- Principal protection is guaranteed.
- Contract duration is typically 3 to 10 years.
- Tax deferral of interest is compounded on an annual basis.
- When the contract expires, you can renew.
- If you want to exit the contract early, you will pay penalties for early withdrawal and a surrender fee.
The only difference is that a MYGA guarantees a set interest rate throughout the duration of the contract. Fixed annuities may have varying interest rates throughout the contract duration.
Before You Select an Annuity, Read This
It is imperative you read the fine print before investing in an annuity. Not only do contract terms vary, but so do the tax implications.
Make sure you fully understand the types of annuities so you can make the best decision for your financial future.
[Related Read: Types of Annuities Explained]