Annuity Comparison: MYGA vs. CD
Today we're talking about annuity comparisons, MYGAs, and Multi-Year Guarantee Annuities versus CDs. What's the difference? Are they the same? Should I buy them? All of that. Why haven't I heard about MYGAs? CDs are they... Which one is better? All that stuff. And you know from me, Stan the Annuity Man®, America's annuity agent® licensed in all 50 states, including the one you're sitting in.
MYGAs and CDs
Let's talk about MYGAs and CDs. Disclaimer, I don't sell CDs. Number two, I love CDs. They are great. In the Jimmy Carter world, you could get 10 or 12% interest on a CD that my mom still talks about. Those CD levels don't exist. We're probably not going to see those levels of interest in our lifetimes. We might, but I doubt it. Currently, at the time of this taping, CD levels are tough. They're low, and it’s primarily based on the ten-year treasury. That's kind of the bogie. But CDs are great products. No moving parts, no market attachments, no annual fees. It's a contractually guaranteed yield for a specific period of time. And I like CDs because you can get short-term CDs like six months, and three months, and nine-month, and 12 months, and 18 months, and two years, and three years. I mean, you can ladder those CDs.
But the problem is that the yields aren’t there at the time of this taping. But CDs, they're the safest of the two. You say, which is the same, fest MYGAs or CDs? It's CDs. FDIC insurance. F stands for federal. F stands for we're going to fricking tax your money and get the money to pay people back that own. So, CDs are great and great for short-term principle-protected, guaranteed annual yield. The problem is right now the yield is pretty skinny. The yields are skinny on CDs.
They're both simple products. They're both pro-consumer products.
Now let's talk about Multi-Year Guarantee Annuities. And a lot of people are just finding out about these. Why? MYGAs are the annuity industry's version of a CD. It's not a CD; it’s a CD type. It functions similarly to a CD. MYGAs guarantee an annual interest rate for a specific period of time. Sound eerily familiar? Yeah. That's because I just used that to describe CDs and certificates of deposit. Multi-Year Guarantee Annuities currently have much higher yields than CDs at the time of this taping. And the reason is there's kind of a dynamic pricing model with Multi-Year Guarantee Annuities. Life insurance companies issue MYGAs. So life insurance companies sell life insurance; you know that many sell lifetime income products, and then they sell MYGAs. You have to look at the MYGA carrier for the claims dependability of that guarantee. So they price all of that to guarantee that specific yield for that specific duration.
MYGA Live Rates
Now, on this site theannuityman.com on the main page, you'll see "Click here to see live rates." 24/7 365, you can do that. Hit the dropdown to pick your state of residence, and then click the dropdown to click the duration, whether it's two years, three years, four years, five years, or whatever. And then up will pop the top yields of surrender contractually guaranteed best yields for your state. And that changes a lot, every seven to 10 days. Annuity quotes and annuity rates change like a gallon of milk. You got to look at it like that. Not one's better than the other. MYGAs are pretty much the same from the standpoint of the yield. They will give you that yield for the specific duration you choose. But many times, Multi-Year Guarantee Annuities have different types of death benefits attached. You can use Multi-Year Guarantee Annuities in Roth IRAs, regular IRAs,non-IRAs, and checking account types.
But just remember, with annuities in general, you can't put more than 50% of your investable assets in annuities of any type in combination. So the annuity industry is very aware and does not want people putting too much money into annuities. But 50% for principle protection of your portfolio is not a bad deal. I call MYGAs kind of the baseball analogy of a bunt single. It's not complicated, but you're going to make money. You're not going to pay fees. It is contractual. You're going to protect your principal.
Everything goes in cycles. A lot of people that are baby boomers that are turning 65, 10,000 of them every day, there's a demographic tidal wave, a lot of people are kind of wary because they've seen markets go up and down, and it feels a little tense right now. Can the market go down? Yeah, markets will go down, up, and down. You have to have money in the stock market, but Multi-Year Guarantee Annuities would be a good place to look at principle protection.
Now, if you're looking at it from a non-IRA standpoint, with CDs, you will have to pay taxes on that interest every year in a non-IRA using CDs. With Multi-Year Guarantee Annuities in a non-IRA account, that interest grows tax-deferred. Now you have to pay taxes when you eventually pull it out. But many people like it, number one, because it's getting a higher yield than CDs. But number two, you can defer taxes using a non-qualified account. In addition, at the end of the term, and let's give you an example, you have a five-year Multi-Year Guarantee Annuity. And at the end of the five years, you might say that you don’t need the money. Can you transfer it? The answer is yes.
Regardless of account, you can transfer an MYGA to another Multi-Year Guarantee Annuity. Non-taxable event. It does not trigger taxes, whether it's IRA or non-IRA. Even if it's non-IRA, you can go from one MYGA to another. Section 1035 of the IRS code says that you can transfer from one annuity to another without taxes in a non-qualified account. If it's an IRA account, it goes from one IRA to another established at the carrier. That's a good thing.
MYGA and CD Combination
Now can MYGAs and CDs be used in combination? Absolutely. In a normal interest rate environment where CDs are getting a little better yield, you could do short-term duration CDs like six months, 12 months, 18 months, and then after that do MYGAs, three years, four years, and five years. We used to do a lot of that. I don't sell CDs, but I would advise you to go to bankrate.com and check the best CD rates in the country because they're FDIC insured, et cetera. Because one's not better than the other. MYGAs aren't better than CDs because the interest is tax-deferred in a non-qualified, non-IRA account. That didn't make MYGAs better. It's just kind of a unique thing when you compare MYGAs and CDs.
MYGAs can also be converted to other types of annuities like income annuities, like an immediate annuity at the end of the duration. So there's a lot of flexibility with that. But the bottom line with this is if you want principal protection, and you know my acronym PILL. P stands for principal protection; I stands for income for life; L stands for legacy, and L stands for long-term care. The P for principle protection encompasses both CDs and MYGAs. They're both great products. They're both simple products. They're both pro-consumer products.
Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.