5-Year Treasury vs 5-Year MYGA (2026): Head-to-Head Math

Why the gap exists

The 5-year Treasury at 4.98% (September 25, 2026) reflects the U.S. government's borrowing cost for that maturity, essentially the risk-free benchmark. A 5-year MYGA at 5.50-6.05% from an A-rated insurance carrier reflects the same maturity in a corporate balance-sheet wrapper. The carrier invests in a duration-matched bond portfolio (corporates, mortgages, structured credit) and captures a credit-and-illiquidity spread, passing some of it to you.

The gap between 5-year Treasury and 5-year MYGA rates moves with credit spreads and carrier pricing; in late September 2026 it was roughly 52-107 basis points. The carrier's investment portfolio earns enough excess yield to pay a meaningful premium AND keep a margin for itself.

Side by side

Worked example: $250K over 5 years

California resident (top federal + 10.3% state)

5-year Treasury at 4.98%:

• Annual pre-tax interest: $12,450
• Federal tax (37%): $4,607
• State tax: $0 (exempt)
• After-tax annual: $7,843
• 5-year after-tax total: $39,217

5-year MYGA at 5.50% (annual compounding):

• Ending value at year 5: $326,740
• Gross gain: $76,740
• Federal tax (37%) + state tax (10.3%) at withdrawal: $38,508
• After-tax 5-year gain: $42,904

MYGA wins by $3,687, even after losing the Treasury's state-tax exemption. The 52-bp yield premium and tax deferral still outweigh the state-tax shield, but narrowly at this bracket.

Texas resident (no state tax)

5-year Treasury at 4.98%:

• After-tax annual: $7,843 (same as CA)
• 5-year total: $39,217

5-year MYGA at 5.50%:

• 5-year gross gain: $76,740
• Federal tax only (37%) at withdrawal: $30,122
• After-tax gain: $51,290

MYGA wins by $12,072, more than three times the California advantage, in no-state-tax states.

When the Treasury wins

• You might need the cash within 3 years. Treasury secondary market settles T+1. MYGA full surrender takes 10-30 days with surrender charge.
• You're under 59 1/2 and might withdraw. IRS adds 10% penalty on the gain portion of pre-59.5 MYGA withdrawals. Treasuries have no IRS age penalty.
• You're parking less than $10,000-$25,000. Most MYGA carriers have minimums. Treasuries go as low as $100.
• You want pure-Treasury safety with no carrier exposure. A 5-year Treasury is U.S. government direct, with no state guaranty fund dependency.
• You expect a sharp rate spike. If 5-year Treasury yields jump to 6.5%+, your locked 5.50% MYGA looks worse in relative terms. You'd still earn 5.50%. You just couldn't reinvest at the higher rate without paying surrender charges.

When the MYGA wins (most retirement scenarios)

• You can confidently leave the money for 5 years. The 10%/yr free withdrawal provision handles unexpected partial needs without penalty.
• You want full federal and state tax deferral. Treasury defers nothing: 1099-INT every year.
• You're in retirement and don't need the income. Compounding gross inside the MYGA shaves your taxable income meaningfully vs Treasury coupons.
• You're already in a high tax bracket. The deferral value is worth more when your marginal rate is higher.
• You plan to 1035 at term-end. Roll the MYGA into another annuity tax-free; extend deferral indefinitely.

The hybrid: split the deposit

For a $250K deposit with mixed liquidity preferences:

• $50K in 5-year Treasuries (full liquidity, state-tax exempt)
• $200K in 5-year MYGA (yield premium, deferral, 10%/yr partial access = $20K/yr free withdrawal)

Effective blended yield: ~5.64% pre-tax (4.98% Treasury, 5.50% MYGA), with $20K/year of free MYGA withdrawal plus the entire $50K Treasury tranche always sellable. This is what most retirees actually want.

FAQ

Is the MYGA carrier as safe as the U.S. Treasury?

Different but both essentially safe for typical retail balances. The U.S. Treasury has unlimited backing. A-rated MYGA carriers haven't defaulted on contractholder obligations in the modern era; state guaranty funds cover $250-300K per owner per carrier as a backstop. For balances above the guaranty limit, split across multiple A-rated carriers.

Why don't more financial advisors recommend MYGAs?

Three reasons: (1) bank/brokerage advisors aren't insurance-licensed so they can't sell them; (2) fee-only RIAs don't earn fees on commissions and have no compensation reason to recommend them; (3) MYGAs require insurance-license sales channels that fiduciary planners often disdain. The economic case for MYGAs is independent of the distribution challenges.

What is the surrender charge schedule?

Typical 5-year MYGA: 9% in year 1, 8% in year 2, 7% in year 3, 6% in year 4, 5% in year 5, then 0%. Free withdrawal of 10% per year doesn't trigger the charge. The schedule applies only to amounts above the free-withdrawal allowance.

Can I get a fixed monthly income from a MYGA?

Yes. Most MYGAs allow systematic withdrawal of the 10% per year amount as monthly checks. At maturity, you can also annuitize the contract into a SPIA for guaranteed lifetime income.

What happens at MYGA maturity?

You have three choices: (1) take the lump sum in cash (federal+state tax applies on the gain); (2) renew into another MYGA with the same or different carrier; (3) 1035 exchange tax-free into another deferred annuity. Most retirees pick option 2 or 3 to maintain deferral.

Are MYGAs IRA-eligible?

Yes. Many retirees use MYGAs inside traditional IRAs (where the state-tax exemption of Treasuries is moot anyway). Inside an IRA, the MYGA's yield premium becomes the primary driver of the comparison.

How long until I can buy the MYGA after deciding?

Typically 7-14 days from application to funded contract. Treasuries can be bought same-day at any brokerage.

Can I exit the MYGA in an emergency?

Yes, with surrender charge. Most carriers also waive surrender charges for terminal illness, nursing home confinement, or disability. Read your specific contract.

Related reading

• 10-year Treasury vs MYGA
• Treasury laddering
• T-bills vs MYGA
• Best MYGA Rates 2026
• CD vs MYGA comparison

Disclosure

This review reflects publicly available Treasury auction results, TreasuryDirect documentation, and approximate market yields as of the date stated above. Treasury yields change daily; current yields differ from prior auctions and may differ from those shown here. This article is general information for educational purposes; it is not a personalized recommendation, solicitation, or offer of any specific security or insurance product. U.S. Treasury securities are backed by the full faith and credit of the United States Government. MYGA references compare Treasury yields against approximate rates from A-rated insurance carriers as of the date stated; carrier rates change monthly. State guaranty fund coverage on annuities is provided by the state insurance department and varies by state (typically $250,000-$300,000 per owner per carrier). Hans Goldstein is an independent licensed insurance producer (NPN 20602398) appointed with multiple A-rated annuity carriers; he is NOT a registered investment advisor, broker-dealer, or registered representative, and is not paid by the U.S. Treasury, TreasuryDirect, or any brokerage for this review. No compensation has been received from any third party in connection with this content. Always read the actual offering documents and consult a licensed advisor before purchasing any security or annuity. Tax discussion of 31 U.S.C. §3124 and Internal Revenue Code provisions reflects law as of 2026 and is subject to change.