Do you want to earn 4% or more on your savings? If so, skip the traditional checking or savings account and try a higher-income option, like a high-yield savings account (HYSA) or a multi-year guaranteed annuity (MYGA).
These two types of accounts are very different, but one or both could be what you are looking for. If you want the flexibility to withdraw your money from the bank whenever you need it, HYSA offers just that. For savings that you won’t need to touch for at least a few years, a MYGA could be exactly what you’re looking for.
A multi-year guaranteed annuity (MYGA) is an insurance contract that allows you to deposit a lump sum of money with an insurance company for a set period of time, known as the accumulation period. In exchange for your deposit, you will get a guaranteed interest rate for the entire term.
Some people think that MYGAs and CDs are essentially the same, but they have some key differences. Below are the main features of MYGA:
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Multi-year: You can choose MYGA terms ranging from three to 10 years, depending on what the provider offers. Some providers allow you to withdraw a portion of your deposit each year without penalty.
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Guaranteed: MYGA rates are fixed, meaning you earn a fixed interest rate for the duration of your investment. Rates vary depending on the provider and the length of the contract, but currently range between 3.75% and 7.66%.
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Annuity: Like other types of annuities, a MYGA is a product you can purchase from certain insurance companies to help you invest money or increase your savings.
One of the main benefits of having a MYGA is that your interest grows tax deferred. That means you don’t pay taxes until you make a withdrawal, so both your deposit and earnings can accrue interest until then.
A high-yield savings account (HYSA) is a bank account that has the same features as any regular savings account, but carries a much higher interest rate. While the national average interest rate on savings accounts is currently 0.39%, you can find HYSAs with rates as high as 4% APY.
These accounts are typically available through online-only banks, which can offer above-average savings rates because they don’t have the overhead costs involved in operating physical bank branches.
Both MYGAs and HYSAs can help you earn competitive interest rates on your savings, but they do so in very different ways.
With MYGA, you earn a fixed rate of return for the entire contract term. HYSAs, on the other hand, have variable rates, meaning they can be adjusted up or down at any time.
Additionally, MYGAs offer limited access to your money, while HYSAs typically allow six or more penalty-free withdrawals per month.
Whether MYGA or HYSA is better for you depends on your situation. Here are some details and features that can help you decide which account will best suit your needs.
While you may be able to earn higher returns by investing in assets like stocks, there is a chance you could lose money if the market performs poorly. In contrast, MYGAs offer guaranteed growth (often at higher rates than HYSAs) with little risk of losing your money. The main risk is that you may need access to the money before your contract ends.
Unlike MYGAs, you can withdraw your cash easily and without penalties if you face an emergency or want it for any other purpose.
HYSAs are also a better place for your savings than a regular checking or savings account, since you can get much higher interest rates with HYSAs.
The main disadvantage of MYGA is that you have limited access to your money. If you make an early withdrawal, you could face a surrender charge of up to 10% of your withdrawal amount. You may also face tax consequences if you withdraw from a MYGA before age 59½.
Your MYGA provider may allow you to withdraw limited amounts from your MYGA without penalty. The amount of the fine often depends on how many years it has been since you opened your MYGA; The more time has passed, the lower the rates may be.
An annuity may be a better option than a HYSA for earning interest if you have savings that you don’t need to access for several years or more.
Read more: Fixed Annuities vs. CDs: Which is Better for Your Retirement Savings?