2.65% Bank CD Alternative - MYGA

Understanding The Difference Between an MYGA and Bank CD

What is a Multi-Year Guaranteed Annuity (MYGA)?

A MYGA works exactly like a Bank CD.?You deposit a single payment which earns a much higher rate of interest than a Bank CD.?The interest is guaranteed, in this example, for 3 years. With a MYGA, the interest accumulates on a tax-deferred basis.

Understand the Difference Between Bank CDs And MYGA’s

In this guide, I’ll go over the primary differences between a MYGAs so you can make the best decision when comparing Bank CD rates with MYGAs.

We’ll Answer the Following Questions:

What is a Bank CD and how does it work?

?A certificate of deposit, more commonly known as a CD, is?a special type of savings account. You deposit your money into the account and agree not to make any withdrawals for a certain period of time. At the end of that time, you get your money plus whatever was earned in interest back

?What is a Multi-Year Guaranteed Annuity and how does it work?

?Multi-year guaranteed annuities, or MYGAs, are?a type of fixed annuity that protects your premium and accumulates interest at a guaranteed rate for a specific amount of time.

Similarities and Differences

Both are savings plans

·??????Both earn a guaranteed, fixed amount of interest

·??????Both offer safety of principal

·??????Both can avoid probate if titled properly

·??????Only MYGAs offer 10% penalty-free withdrawals after year 1

·??????CD withdrawals prior to maturity must pay a penalty

·??????Only MYGAs offer tax-deferred growth – IRA and Non-IRA

·??????CD interest is taxed every year unless it is an IRA

·??????Only MYGAs can be converted to provide guaranteed lifetime income

·??????CDs cannot be converted to lifetime income

Are Bank CDs and Annuities Insured?

Yes, both are insured.?

Bank CDs are insured on the federal level by the FDIC

Annuities are insured on the state level by State Guaranty Associations

Both are insured for up to $250,000.

Do I have to Pay Taxes on the Interest?

?Sadly, yes.

?Interest earned on Band CDs is paid annually as ordinary income unless the CD is set up as an IRA.

?Interest earned on a MYGA (NON-IRA or IRA) grows tax-deferred and not reported until maturity.

Do I have any Liquidity?

Bank CDs – only with a penalty

MYGAs – 10% penalty-free withdrawal after the first year.

Can I Turn My Bank CD or MYGA Into an Income Stream?

Bank CDs: No. Bank CDs are typically paid out in a lump sum, sometimes monthly interest payments, but there’s no guaranteed lifetime income.

MYGAs:?There are several ways to generate an?income stream from a MYGA:

1.?Owners can “sweep the interest” which means withdrawing only the interest for income while preserving the original principal.

2.?Another method is?annuitizing the policy which can provide the annuity owner guaranteed payments for a fixed period of time or for life.

What Do My Beneficiaries Receive When I Die?

Bank CDs and MYGAs offer identical death benefits…it is the accumulation value at time of death – surrender fees are waived.

Estate Planning Issues

Bank CDs. Hopefully, you have designated a beneficiary when you purchased you CD.?If so, your beneficiary will inherit the CD in a lump sum and avoid probate at time of death.?NO name beneficiary, this account will go through probate.

MYGA. Exactly the same.

Avoiding Probate

Bank CDs and MYGAs Avoid Probate.?When filling out a MYGA or Bank CD application we always recommend that you name one or more beneficiaries – this simple convenient step completely avoids probate should you pass away owning a MYGA or Bank CD.

Conclusion

Which option is perfect for you?

It’s simple, Bank CDs and MYGAs are so similar that I recommend the MYGA because you earn much more interest.

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