Looking to earn 4% or more on your savings? If so, skip the traditional checking or savings account and try a higher-earning 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’re looking for. If you want the flexibility to withdraw your money from the bank whenever you need it, a HYSA gives you just that. For savings 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 term, known as the accumulation period. In return for your deposit, you earn a guaranteed interest rate for the full term.
Some people think MYGAs and CDs are essentially the same, but they have some key differences. Here’s a break down the main features of MYGAs:
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 a penalty charge.
Guaranteed: MYGA rates are fixed, meaning you earn a set interest rate for the duration of your investment. Rates vary by provider and length of contract, but they currently range anywhere from 3.75% to 7.66%.
Annuity: Like other types of annuities, a MYGA is a product you can buy from certain insurance companies to help you invest money or grow your savings.
One of the main benefits of having a MYGA is that your interest grows tax-deferred. That means you’re not taxed until you make a withdrawal, so both your deposit and your earnings can accumulate interest until then.
A high-yield savings account (HYSA) is a bank account that has the same features as any normal savings account, but it earns 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 usually available through online-only banks, which can offer above-average savings rates because they don’t have the overhead costs involved with running physical bank branches.
MYGAs and HYSAs can both help you earn competitive interest rates on your savings, but they do it in very different ways.
With MYGAs, you earn a fixed rate of return for the full contract term. HYSAs, on the other hand, have variable rates, meaning they can adjust up or down at any time.
Additionally, MYGAs offer limited access to your money, while HYSAs usually allow six or more penalty-free withdrawals per month.
Whether a MYGA or HYSA is better for you depends on your situation. Here are a few details and features that can help you decide which account will best serve your needs.
While you may be able to earn higher returns by investing in assets like stocks, there’s a chance you’ll lose money if the market performs poorly. By 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 free of penalties if you’re facing an emergency or want it for any other purpose.
HYSAs are also a better place for your savings than a checking account or regular savings account since you can earn much higher rates with HYSAs.
The main downside of a MYGA is that you have limited access to your money. If you make an early withdrawal, you could face a surrender charge as high as 10% of your withdrawal amount. You may also face tax consequences if you withdraw from a MYGA before age 59 ½.
Your MYGA provider may allow you to withdraw limited amounts from your MYGA without a penalty. The penalty amount often depends on how many years have passed since you opened your MYGA; the longer it’s been, the lower the fees may be.
An annuity can be a better option than a HYSA for earning interest if you have savings that you don’t need access to for several years or more.
Read more: Fixed annuities vs. CDs: Which is better for your retirement savings?
