Are MYGAs Safe?
Whether a multi-year guaranteed annuity is safe depends on what kind of safety you mean. A MYGA is designed to protect principal from market losses because its credited interest rate is not tied to stock market performance. But it is not risk free, and understanding what stands behind the guarantee matters more than the word safe on its own.
What a MYGA protects you from
A MYGA credits a fixed rate of interest set by the contract. That rate does not rise or fall with the stock market, so the account value does not drop when markets drop. For money you want shielded from market volatility over a set period, that is the core protection a MYGA provides.
What stands behind the guarantee
A MYGA is an insurance contract, not a bank product, so the guarantee works differently than protections you may be used to. When an insurance company issues a MYGA, it takes on a contractual obligation to pay the guaranteed rate. That obligation is backed by the financial strength and claims paying ability of the issuing company.
Insurance companies are regulated at the state level. They are required to hold reserves against the obligations they take on, and they are examined by state insurance departments. Because the guarantee rests on the issuing company, that company's financial strength is the thing standing behind your contract.
Why a MYGA is not a bank deposit
A common question is whether a MYGA is insured the way a bank account is. It is not. Bank deposits carry FDIC insurance. A MYGA is an insurance contract, not a deposit, so a different structure applies: the guarantee is backed by the issuing insurance company rather than by federal deposit insurance. Neither is a substitute for the other. They are simply different systems.
What to know before you buy
A MYGA works best when you understand how it is structured. A few features to be aware of:
- Access to your money. A MYGA is designed to stay in place for the length of the guarantee period. Withdrawals taken before the term ends are generally subject to a surrender charge and a market value adjustment.
- The role of the insurer. Because the guarantee is a contractual obligation of the issuing company, the company's financial strength is what stands behind it.
How to evaluate whether a MYGA is safe enough for you
The practical question is not whether MYGAs are safe in the abstract, but whether a particular contract fits your situation. Worth weighing: whether you need access to your money during the term, the financial strength of the issuing company, and whether a guaranteed fixed return meets your goals. A financial professional can help you work through those against your full picture.
Frequently asked questions
Can you lose money in a MYGA? Your principal and credited interest are not tied to market performance. Early withdrawals may be subject to surrender charges and a market value adjustment, and inflation can reduce the purchasing power of your accumulated value over time. All guarantees depend on the issuing insurer's claims paying ability.
Is a MYGA insured like a bank account? No. Bank deposits carry FDIC insurance. A MYGA is an insurance contract, not a bank deposit, and is backed by the financial strength and claims paying ability of the issuing insurance company.
