Fixed Rate include Multi-Year Guarantee Annuities (MYGAs) and CD-type Annuities.
Multi-Year Guarantee Annuity is a term used to describe a fixed annuity that has an interest rate guarantee for the same period of time as its surrender period.
Multi-Year Guarantee Fixed Annuities differ from “banded rate” fixed annuities, which may offer a guaranteed interest rate for the first year only and then a renewal rate that can vary – e.g. 8% for the first year and a minimum of 2% for years 2-5, for a blended rate of 3.17% over five years. Banded rate fixed annuities are designed to lure you with a high first-year rate, without being up-front about the uncompetitive blended rate over the entire time horizon. Also, note that banded rate fixed annuities pay the greatest commission to financial planners – on average two to three times the commission on Multi-Year Guarantee Fixed Annuities! So, unfortunately, unscrupulous financial planners may try to sell you an inferior product to increase their own commission. You can read a more detailed discussion of banded-rate annuities, and why we don’t recommend them here.
What are the Differences Between Bank CDs and Multi-Year Guarantee Annuities?
The term Multi-Year Guarantee Fixed Annuity came about because the returns are guaranteed for a fixed period, like bank certificate of deposits (“CDs”). However, the similarities stop there – in fact fixed annuities are very different than bank CDs. Here are the most significant differences between “MYG” fixed annuities and bank CDs:
Should I Invest in a Bank CD, or in an Annuity with Multi-Year Guaranteed Returns?
If you are looking for a guaranteed rate of return over a fixed term, Annuity FYI encourages you to research “MYG” fixed annuities – primarily because of their higher interest rate guarantees and tax advantages over bank CDs. However, closely examine the terms and conditions of any fixed annuity before investing. If you are uncertain, contact an licensed financial professional contact an licensed financial professional by Internet/e-mail, or call 1-866-223-2121
Does the fixed annuity have a guaranteed interest rate for the entire rate period, or can the rate change after the first year? If so, what will that rate be?
Is the guaranteed rate competitive with other products on the market?
What is the financial strength rating of the insurance company issuing the fixed annuity? What do the ratings mean? Is a rating of “A-” with A.M. Best good or bad?
What is the guaranty provided by my state?
Are withdrawals permitted during the term of the fixed annuity?
What are the insurance company and IRS penalties if I need to withdraw my money early?
Does the fixed annuity have a Market Value Adjustment (MVA)? How does an MVA affect me?
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