Should I Use HYSA or MYGA for 3-Year Money?
TL;DR
MYGA, in almost every realistic scenario. On $250,000 of non-qualified money locked for 3 years, a 5.30% MYGA produces ~$41,900 of interest vs ~$30,000 from a HYSA averaging 3.85% through a normal cutting cycle. After 24% federal + 9.3% state tax (HYSA pays annually; MYGA pays only at withdrawal), the MYGA wins by approximately $7,800 over 3 years. The HYSA wins only when you might genuinely need the money inside 12 months.
The short answer
For money you can genuinely lock for 3 years, a MYGA wins. By a lot. The yield gap (5.30% MYGA vs 4.25% HYSA today, and a HYSA that will drop through any cutting cycle) compounds in the MYGA's favor. The tax-deferral advantage on non-qualified money widens the after-tax gap further. The MYGA's 10% annual penalty-free withdrawal provision means it's not as illiquid as people assume.
The HYSA wins only when you might genuinely need the money inside 12 months. For 3-year money — money you have already mentally categorized as "not for emergencies, not for current spending, not needed soon" — the MYGA is the correct instrument.
The numbers, side by side
$250,000 of non-qualified money. 3-year horizon. 24% federal + 9.3% California marginal tax bracket. Today's rates: top HYSA 4.25% variable, A-rated 3-year MYGA 5.40% locked.
| Scenario | HYSA blended APY | MYGA APY | HYSA 3-yr interest | MYGA 3-yr interest |
|---|---|---|---|---|
| Rates hold flat (best case for HYSA) | 4.25% | 5.40% | ~$33,260 | ~$42,700 |
| Fed cuts 100 bps over Year 1 (realistic) | ~3.85% | 5.40% | ~$30,000 | ~$42,700 |
| Fed cuts 200 bps over Year 1 (bear case) | ~3.45% | 5.40% | ~$26,800 | ~$42,700 |
Pre-tax, the MYGA wins by $9,400 to $15,900 over 3 years on $250K, depending on the rate path. The locked rate insulates you from cuts; the variable rate does not.
The tax math
The MYGA's edge widens after tax. HYSA interest is taxed annually on a 1099-INT at marginal rates. MYGA interest defers until withdrawal. For non-qualified money in a higher bracket, the deferral is meaningful.
On $250K at 24% federal + 9.3% CA marginal (33.3% combined):
| Item | HYSA midcase | MYGA at 5.40% |
|---|---|---|
| Pre-tax 3-yr interest | ~$30,000 | ~$42,700 |
| Tax paid annually (HYSA) | ~$9,990 paid Years 1-3 | $0 paid annually |
| Tax paid at end (MYGA, on $42,700) | n/a | ~$14,219 paid Year 3 |
| Total 3-yr after-tax interest | ~$20,010 | ~$28,481 |
| Tax-deferral compounding edge (estimate) | n/a | ~$700-$1,000 |
| Net after-tax MYGA advantage | ~$9,170 | |
On $250K of non-qualified 3-year money in a high-tax state, the MYGA wins by roughly $9,170 after tax. On $100K, the advantage is roughly $3,670. On $500K, roughly $18,340.
Liquidity: is the MYGA really locked?
This is where the misunderstanding lives. A MYGA does have a surrender schedule — typically 7-6-5-4-3-2-1% in years 1-7 for a 7-year contract, or 5-4-3 for a 3-year contract. Total surrender at year 1 costs you 5-7% of value.
But most A-rated MYGAs allow 10% of the contract value per year withdrawn penalty-free after year 1. On $250K, that's $25,000/year accessible without any surrender charge. Combined with the typical penalty-free RMD distribution (if held in an IRA), the MYGA is not nearly as illiquid as the surrender schedule alone suggests.
For 3-year money where the working assumption is "I won't need to touch it," the 10% annual liquidity is a reasonable safety valve. It is not as flexible as a HYSA, but it's enough flexibility for the use case.
Coverage: FDIC vs state guaranty
HYSA: FDIC-insured up to $250K per depositor per insured bank per ownership category. Backed by the full faith and credit of the United States.
MYGA: backed by the issuing insurance carrier's claims-paying ability, with secondary coverage from the state guaranty association in your state (typically $250K-$300K per owner per carrier). For A-rated carriers (AM Best A or better), the carrier credit is strong; insolvency rates among A-rated annuity carriers since 1990 are well below 1%.
The coverage gap between FDIC and state guaranty is real but small for A-rated carriers. The 100-150 bps of additional yield more than compensates for it on most realistic risk-adjusted basis.
When the answer changes
- You might need the money inside 12 months. The 5-4-3% Year-1 surrender charge is a real cost. Stay in HYSA.
- You are in a 0 or 12% bracket. The tax-deferral advantage shrinks substantially. MYGA still wins on yield but by less; the decision becomes closer.
- The money is inside an IRA. The MYGA's tax-deferral advantage goes away (the IRA already defers tax). Inside an IRA, MYGA vs HYSA is purely about yield (still favors MYGA) and coverage (favors HYSA marginally).
- You have a known liquidity event > 10% of principal in years 1-2. The MYGA's 10% annual penalty-free withdrawal isn't enough; the HYSA's full liquidity is needed.
- You are buying from a B-rated or unrated carrier. The yield premium is not worth the credit risk. Only buy MYGAs from AM Best A-rated or better.
The 3-rung MYGA ladder (better than a single MYGA)
For balances over $150K, a 3-rung MYGA ladder usually beats a single 3-year MYGA. Structure:
| Rung | Term | Indicative APY (A-rated) | Allocation of $250K |
|---|---|---|---|
| Short | 3-year | 5.30% | $83,000 |
| Medium | 5-year | 5.55% | $83,000 |
| Long | 7-year | 5.80% | $84,000 |
The blended yield is about 5.55%, with one rung maturing every 2 years for reinvestment optionality. At each maturity, you can surrender for cash, 1035-exchange into a new MYGA, or annuitize into a SPIA — all without tax recognition on the 1035 exchange. See CD ladder vs MYGA ladder for the full structure.
Common mistakes
- Buying a MYGA from a B-rated carrier for the 50-bp yield bump. Stick to A-rated. The yield premium does not compensate for the credit risk.
- Not reading the surrender schedule. Some MYGAs have longer or steeper surrender schedules than the industry norm. Read the contract before signing.
- Missing the 10% annual penalty-free withdrawal in the math. Many buyers think MYGAs are 100% locked. They're not. The 10% provision changes the liquidity calculus.
- Holding a MYGA in an IRA expecting the deferral edge. Inside an IRA, both HYSA and MYGA are tax-deferred. The MYGA still wins on yield, but the deferral is not additive.
- Buying the first MYGA quote. Quotes vary across carriers by 50-100 bps on the same term. Get 3-5 quotes from an independent producer before committing.
- Confusing MYGAs with FIAs. MYGAs pay a fixed rate. Fixed Indexed Annuities (FIAs) credit interest based on market index participation with caps and floors. Different product, different complexity, different use case. This page is about MYGAs only.
What to do next
If you have $50K+ of non-qualified 3-year money currently in a HYSA, the MYGA comparison is the highest-yield decision available to you in the locked-rate world today. Get 3-5 quotes from A-rated carriers, compare against your current HYSA APY, and run the after-tax math at your specific bracket.
The math almost always favors the MYGA. The few exceptions (genuine 12-month liquidity need, 0% tax bracket, IRA-held money without yield gap) are well-defined and you'll know if they apply to you.
Related: how much $250K earns in a HYSA, what happens to HYSA when Fed cuts, CD ladder vs MYGA ladder full comparison.
Frequently asked follow-up questions
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Disclosure
This article reflects publicly available HYSA, CD, and annuity rate information approximate to the date above. High-yield savings rates are variable and change frequently — often weekly. Always confirm current rates directly with the institution before opening or transferring. This is general educational content, not a personalized recommendation, solicitation, or offer of any specific product. Hans Goldstein is an independent licensed insurance producer (NPN 20602398) appointed with multiple A-rated carriers in the fixed-annuity market; Goldstein & Co. LLC is not a bank, broker-dealer, or registered investment adviser. HYSAs and CDs are deposit products of FDIC-insured banks or NCUA-insured credit unions; MYGAs and other annuities are insurance contracts backed by the issuing carrier and state guaranty associations. FDIC and NCUA insurance limits are typically $250,000 per depositor per institution per ownership category. Tax discussion reflects federal law as of 2026 and is subject to change; consult a tax professional for your situation.