If you are concerned about the volatility in the stock market, but at the same time are concerned about what effect rising interest rates will have on the bond market, maybe you are looking for alternatives. Money markets and even CDs may not have attractive crediting rates, but have you ever investigated a Multi-Year Guarantee Annuity, or MYGA?
A MYGA, sometimes referred to as a “CD Annuity” offers a contractually guaranteed rate of return for a set period of years, like a CD. Options typically range from two up to ten years. MYGA annuities are issued by insurance companies and backed by their full faith and credit. Companies are rated by independent rating agencies, so it is easy to examine and compare financial ratings. Each annuity contract is also guaranteed by a state guarantee fund up to $250,000 as an additional assurance. You can find your state guarantee association at the National Organization of Life & Health Insurance Guaranty Associations, www.nolhga.com.
A MYGA has a declared rate of interest for the period you select, generally has a liquidity feature if you need access to the funds before the end of the guaranteed term, and has no early termination charge after the guaranteed period. Your funds are not subject to market risks or interest rate changes. The other added advantage of MYGA’s is that the interest compounds and grows tax deferred! You can choose to roll over at the end of the stated period at new current rates, close out the policy, or even turn on an income stream.
The big question is, does the MYGA fit with your financial situation? Well, do you have a CD making nominal interest and still get taxed on it every year? Do you have bonds that are losing to inflation? Are you looking to protect a bucket of money, in at tax efficient structure, for later? If so, then a MYGA could potentially be part of your financial plan.
Rates and available products change and may vary widely state to state. As a service to our readers, we will be including a MYGA rate table in this (and future) issues. If this is something you would like more information about, please let us know how we can help.