Where to Park Cash for 5 Years: MYGAs Win Cleanly
The 5-year decision matrix
| 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 |
The MYGA advantage compounds
At 5 years, three forces stack up for MYGAs:
- Yield premium widens. 5-year MYGAs at A-rated carriers pay 5.70-5.95% in 2026. 5-year bank CDs pay 4.30-4.65%. The spread is 105-165 bps.
- Tax deferral compounds for 5 full years. No annual 1099 means interest reinvests at the gross rate, not the after-tax rate. Over 5 years this compounds meaningfully.
- Lock protects from Fed cuts. If the Fed cuts 150 bps over 2026-2028 as the market expects, HYSAs and short CDs will reset down. The 5-year MYGA stays at 5.85% the whole way.
Worked example: $250K for 5 years
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).
5-year CD at 4.55% brokered, taxed annually
| 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 |
5-year MYGA at 5.85%, fully tax-deferred
| 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.
What about 5-year T-notes?
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.
The HYSA path crashes
HYSA at 4.50% today with Fed cuts incoming:
| 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.
The MYGA surrender risk
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.
Carrier selection at 5 years
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.
The right structure for $500K+ at 5 years
For amounts above the state guaranty fund limit at a single carrier ($250K-$300K depending on state), split the position:
- $250K MYGA at Carrier A (5-year, 5.85%)
- $250K MYGA at Carrier B (5-year, 5.75%)
- Excess at Carrier C or in a brokered CD
This keeps every dollar within state guaranty fund coverage while still capturing the MYGA yield advantage.
Related reading
- Where to park cash for 3 years
- Where to park cash for 10 years
- CD ladder vs MYGA ladder
- When to move from HYSA to MYGA
Frequently Asked Questions
Is 5.85% really the going rate for 5-year MYGAs?
In mid-2026, yes - A-rated carriers like Athene, Sammons, and Equitrust offer 5.70-5.95% on 5-year MYGAs. Top-of-market changes monthly. Verify with an independent producer who has access to current carrier rate sheets across the market.
What is the difference between a MYGA and a fixed annuity?
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.
Should I prefer the 5.85% A-rated or 5.75% A+ rated MYGA?
Usually the A+ rated. 10 bps over 5 years on $250K is $1,250 - 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.
Can I add to my MYGA after issue?
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.
What if I die in year 3 of a 5-year MYGA?
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).
Does a MYGA count for Social Security earnings test?
No. MYGA interest is unearned investment income, not earned income. Doesn't affect Social Security earnings test or other earned-income calculations.
Can my IRA own a 5-year MYGA?
Yes. Many MYGAs are sold inside IRAs. Tax treatment becomes the IRA rules rather than annuity rules - the deferral is already provided by the IRA, so the MYGA's deferral isn't an additional benefit. Use IRA-MYGAs for the rate certainty, not for additional tax shelter.
Want a second opinion on your cash strategy?
Talk to a licensed independent advisor. Hans.
HYSA yields move with Fed Funds. MYGA lock windows close fast when the cycle turns. The difference between a good and a great cash strategy on $250K+ over 5 years is usually $20,000-$50,000 in real interest. Worth a 15-minute conversation.
Drop your info and you will get a written allocation review across HYSA, CD, MYGA, and T-bill options — and a no-pressure 15-minute call if you want one.
Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed insurance producer appointed with multiple A-rated carriers
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Disclosure
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 article is general information for educational purposes; it is 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 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.