| Option | Gross Yield (2026) | Liquidity | Tax Treatment | 5-Year Cumulative on $250K (Net, CA) |
|---|---|---|---|---|
| HYSA (Fed cuts assumed) | 4.50% then declining | Instant | Annual ordinary | ~$25,000 |
| 5-year direct CD | 4.45% | Locked, penalty if early | Annual ordinary | $37,177 |
| 5-year brokered CD | 4.55% | Secondary market | Annual ordinary | $38,082 |
| 5-year Treasury note | 4.15% | Secondary market | Fed only | $39,427 (state-exempt helps) |
| 5-year MYGA (A-rated) | 5.85% | Locked, declining surrender | Deferred until withdrawal | $54,747 |
| 5-year MYGA (A+ rated, top) | 5.75% | Locked, declining surrender | Deferred | $53,418 |
At 5 years, three forces stack up for MYGAs:
Saver in CA, 24% federal + 9.3% CA. Money committed for 5 years (e.g., earmarked for a known purchase, business sale proceeds, retirement bridge fund).
| Year | Balance | Annual Interest | Tax (33.3% combined) | Reinvested |
|---|---|---|---|---|
| 1 | $257,580 | $11,375 | $3,788 | $7,587 |
| 2 | $265,396 | $11,720 | $3,903 | $7,817 |
| 3 | $273,449 | $12,076 | $4,021 | $8,055 |
| 4 | $281,747 | $12,442 | $4,143 | $8,299 |
| 5 | $290,297 | $12,820 | $4,269 | $8,550 |
| End | $290,297 | $60,432 gross | $20,124 tax | $40,308 net interest |
| Year | Balance End-Year | Interest That Year | Tax Paid |
|---|---|---|---|
| 1 | $264,625 | $14,625 | $0 |
| 2 | $280,106 | $15,481 | $0 |
| 3 | $296,492 | $16,386 | $0 |
| 4 | $313,837 | $17,345 | $0 |
| 5 | $332,196 | $18,359 | $0 |
| Withdraw all year 5 | $332,196 | $82,196 gross | $27,371 (one-time) |
| Net to keep | $304,825 |
MYGA net: $304,825. CD net: $290,297. MYGA wins by $14,528 over 5 years on the same $250K. If the saver is in a lower bracket in year 5 (retirement, business slowdown), the tax bill on the MYGA is smaller and the gap widens.
5-year Treasury notes pay ~4.15% in mid-2026. Pure credit safety + state tax exemption are the appeal. In CA, the after-tax equivalent yield is ~4.73%. Still loses to MYGA at 5.85% gross + tax-deferred. Use T-notes for the absolute-safety tier within a portfolio, not as a yield-maximizing 5-year hold.
HYSA at 4.50% in June 2026, on a hypothetical path of Fed cuts:
| Year | Assumed HYSA Rate | Interest on $250K | After-Tax (CA 33.3%) |
|---|---|---|---|
| 1 | 4.10% avg | $10,250 | $6,837 |
| 2 | 3.30% | $8,250 | $5,503 |
| 3 | 2.75% | $6,875 | $4,587 |
| 4 | 2.50% | $6,250 | $4,169 |
| 5 | 2.50% | $6,250 | $4,169 |
| 5-yr cumulative | $37,875 gross | $25,265 net |
HYSA delivers $25,265 vs MYGA $54,747 net. MYGA out-earns HYSA by $29,482 on a $250K 5-year hold. Real money.
5-year MYGAs typically have declining surrender schedules: 9-9-8-7-6-0% over 5 years. Year 1 surrender = 9% penalty. Year 5 surrender = 0%. Plus a market value adjustment (MVA) that can add or subtract depending on rates.
Most MYGAs also include a 10% annual penalty-free withdrawal provision. So you can take out $25K from a $250K MYGA each year if needed without surrender penalty (though tax still applies).
The risk: if you need 50%+ of the principal in year 1-3, the surrender penalty + MVA can swamp the yield benefit. Only commit MYGA capital that you are 90%+ confident you won't need before maturity.
5 years is long enough that carrier credit quality matters. Stick to A-rated or better (AM Best A, A+, A++). The top tier of MYGA carriers in 2026 includes Athene, Symetra, Sammons Financial (Midland National), Equitrust, Americo, North American, Reliance Standard. Avoid carriers below A- unless you accept the additional credit risk for an extra 25-50 bps.
For amounts above the state guaranty fund limit at a single carrier ($250K-$300K depending on state), split the position:
This keeps every dollar within state guaranty fund coverage while still capturing the MYGA yield advantage.
It was close in June 2026, when A-rated carriers like Athene, Sammons, and Equitrust offered 5.70-5.95% on 5-year MYGAs. On October 14, 2026, A-rated 5-year MYGAs paid about 5.50% to 6.05% (public carrier rate sheets). Top-of-market changes monthly. Verify with an independent producer who has access to current carrier rate sheets across the market.
MYGA is a subset of fixed annuities specifically structured for a guaranteed multi-year rate. Other fixed annuities may have variable renewal rates after year 1. MYGAs guarantee the rate for the whole term.
Usually the A+ rated. 10 bps over 5 years on $250K is $1,250. That's not nothing, but the credit quality premium is cheap insurance. The state guaranty fund backstops most of the credit risk, but slower payout adds friction.
Most MYGAs are single-premium and don't accept additional contributions after issue. If you want to ladder in over time, buy multiple MYGAs as separate contracts.
The contract beneficiary inherits the full account value (principal + accumulated interest). Most carriers waive any surrender penalty on death. Beneficiary can take lump sum (taxable in year received) or stretch payments (5-year rule for non-spouse beneficiaries).
No. MYGA interest is unearned investment income, not earned income. Doesn't affect Social Security earnings test or other earned-income calculations.
Yes. Many MYGAs are sold inside IRAs. Tax treatment follows the IRA rules rather than annuity rules. The IRA already provides the deferral, so the MYGA's deferral isn't an additional benefit. Use IRA-MYGAs for the rate certainty, not for additional tax shelter.
This article reflects publicly available rates, products, and tax law as of 2026-06-27. HYSA yields, CD rates, MYGA rates, and FDIC/state guaranty fund limits change frequently. Always confirm current values against the most recent provider disclosures and tax law before acting. This is general education, not a personal recommendation or an offer of any product. Hans Goldstein is an independent licensed insurance producer (NPN 20602398) appointed with multiple A-rated carriers across the annuity and long-term care insurance market. No compensation has been received from any bank, credit union, or insurance carrier in connection with the publication of this article. Always read the actual contract or account disclosure and consult a licensed advisor or tax professional before making material cash-management decisions. Past rate environments do not predict future rates.
Hans Goldstein is an Enrolled Agent, admitted to practice before the Internal Revenue Service. Not affiliated with or endorsed by the IRS. General education, not tax or legal advice for your situation.