Looking to earn 4% or more on your savings? If so, skip the traditional checking or savings account and try a higher-income option such as a High-Yield Savings Account (HYSA) or Multi-Year Guaranteed Annuity (MYGA).
These two types of accounts are very different, but one or both may be what you’re looking for. If you want the flexibility to withdraw your money from the bank when you need it, HYSA gives you that. For savings you won’t need to touch for at least a few years, MYGA may be what you’re looking for.
A multi-year guaranteed annuity (MYGA) is an insurance contract that allows you to deposit a certain amount of money with the insurance company for a fixed period of time, known as the accumulation period. In return for your deposit, you 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. Here’s a breakdown of MYGAs main features:
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how old: You can choose MYGA terms 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, which means you get a fixed rate of interest for the duration of your investment. Rates vary by provider and length of contract, but are currently anywhere from 3.75% to 7.66%.
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annual: Like other types of annuities, MYGA is a product that 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 is tax-deferred. This means that you are not taxed until you withdraw, so both your deposit and your income can accumulate interest until then.
A High Yield Savings Account (HYSA) is a bank account that has the same features as any regular savings account, but it earns a higher rate of interest. 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 banks, which can offer above-average savings rates because they don’t have the overhead costs associated with running physical bank branches.
Both MYGAs and HYSAs can help you get a competitive interest rate on your savings, but they do it in different ways.
With MYGAs, you get a fixed rate of return for the entire contract period. HYSAs, on the other hand, have variable rates, meaning they can go 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 best 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 can earn high returns by investing in assets such as stocks, there is a chance that you will lose money if the market performs poorly. Conversely, MYGAs offer guaranteed growth – often at a higher rate than HYSAs – with less risk of losing your money. The main risk is that you may need to access the money before your contract ends.
Unlike MYGAs, you can withdraw your money easily and without penalty if you face an emergency or want it for any other purpose.
HYSAs are a better place for your savings than a checking account or regular savings account because you can get much higher rates with HYSAs.
The main disadvantage of MYGA is that you have limited access to your money. If you withdraw early, you may face a surrender fee that can be as high as 10% of your withdrawal amount. You may also face tax consequences if you withdraw from MYGA before age 59 ½.
Your MYGA provider may allow you to withdraw a limited amount from your MYGA without penalty. The amount of the penalty often depends on how many years have passed since you opened MYGA; The longer it is, the lower the fees.
An annuity can be a better option than a HYSA to receive benefits if you have savings that you won’t need to access for a few years or more.
Read more: Fixed Annuities vs. CDs: Which is Better for Your Retirement Savings?
