A multi-year guarantee (MYG) fixed annuity is like a fixed-rate mortgage in reverse. You give a specific amount of money to an insurance company, and the insurer guarantees that your investment will earn a specific rate of compound interest for a specific number of years.
MYG annuities are often called CD-type annuities or tax-deferred CDs because they serve the same purpose as a certificate of deposit.
The beauty of MYGs is their transparency. What you see is what you get. You know the rate of interest your money will earn and how long it will earn that rate. So, if you want to buy a $50,000 boat in ten years, you can plunk down $32,000 today in a ten-year MYG annuity that pays 4.5 percent. In ten years, you can pay cash for the boat.
Investment advisers often recommend MYG fixed annuities over single-year guarantee contracts because MYG contracts are more predictable. There’s no risk that the insurance company will reduce the interest rate after the first year.
This information is not intended to be tax or legal advice, and it may
not be relied on for the purpose of avoiding any federal tax penalties.
You are encouraged to seek tax or legal advice from an independent
professional advisor.
