MYGA vs Indexed Annuities Explained

This one is simple. If you want guarantees, buy a Multi-Year Guarantee Annuity. If you want a story, buy an Indexed Annuity. Every week I hear from people who were sold an Indexed Annuity with promises of “market upside with no downside.” That sounds great until you read the contract. The truth is in the math, not the pitch.

What a Multi-Year Guarantee Annuity Really Offers

A Multi-Year Guarantee Annuity, or MYGA, is the simplest annuity on the planet. You give the carrier your money, and they guarantee a fixed rate for a set number of years. No market link, no complicated formulas, and no guessing games. It is the certificate of deposit of the insurance world, and that is not an insult. It is a compliment.

A MYGA guarantees your principal and the interest rate for the entire term. When the contract ends, you know exactly what your account will be worth. That is why MYGAs are so appealing for conservative investors who want safety, predictability, and clarity.

The Truth About Indexed Annuities

An Indexed Annuity, on the other hand, links your potential returns to the performance of an external index like the S&P 500. That does not mean you are in the market. It just means your credited interest depends on how the index performs, within the limits the carrier sets.

Those limits are called caps, spreads, or participation rates. They define how much of the index’s growth you actually get. And those numbers can change each year at the discretion of the insurance company. That means your “market-linked potential” can disappear faster than you think.

When an agent tells you that you will “share in the upside with no downside,” what they are really describing is a Fixed Annuity with a variable interest formula. The floor is zero. The ceiling moves. The only thing guaranteed is that the carrier controls the math.

The Difference Between Guarantees and Guesses

A MYGA gives you a contractual guarantee. An Indexed Annuity gives you a hypothetical projection. That is the difference between certainty and maybe.

If you value predictability, the MYGA wins every time. If you want to take a shot at higher returns and you are comfortable with the moving parts, then an Indexed Annuity might make sense. But do not confuse one for the other. They serve different purposes.

The danger comes when an agent sells an Indexed Annuity like a growth product. It is not. The average long-term return of an Indexed Annuity rarely beats a MYGA, especially after caps and spreads adjust over time. If you want true market participation, buy a market product. If you want guarantees, buy an annuity that actually guarantees something.

How to Decide Which One Fits You

The decision between a MYGA and an Indexed Annuity comes down to one question — do you want guaranteed interest or do you want a sales story?

If your goal is principal protection and steady yield, the MYGA is clean, simple, and transparent. You will know exactly what you own, exactly what it pays, and exactly when it matures.

If you are okay with the idea that the carrier can change your crediting method, cap, or participation rate every year, then you are accepting more uncertainty. That does not make it wrong, but you should at least know what game you are playing.

The Bottom Line

When it comes to annuities, simplicity usually wins. The Multi-Year Guarantee Annuity is built on contractual certainty. The Indexed Annuity is built on moving parts and projections.

The next time someone tells you that you can have market growth with no risk, ask them to show you that in the contract. They cannot. Because it is not there.

You own an annuity for what it will do, not what it might do. Guarantees are in the contract. Period.