T-Bills vs MYGA (2026) - The Liquidity vs Yield Decision
The yield gap is real and persistent
The short-end Treasury curve sits at 4.05-4.30% as of 2026-06-27. The 5-year MYGA market from A-rated carriers sits at 5.25-5.65%. That's a 100-140 basis-point yield premium for the MYGA. The reason is structural: T-bills are perpetual rolling debt with weekly auctions; MYGAs are insurance contracts where the carrier locks your cash for 3-10 years and invests it in a duration-matched bond portfolio plus private credit, capturing illiquidity premium. The carrier passes some of that premium to you.
| Dimension | T-Bills (4wk-52wk) | MYGA (3-10yr) |
|---|---|---|
| Current yield (2026) | 4.05-4.30% | 5.25-5.65% |
| Federal tax timing | Annual on 1099-INT | Deferred until withdrawal |
| State tax | Exempt (31 USC 3124) | Generally taxable when withdrawn |
| Default protection | U.S. Treasury - unlimited | State guaranty fund $250-300K per owner per carrier |
| Liquidity | Sell any business day | 10% per year free withdrawal, then surrender charge |
| Minimum | $100 | $10,000-$25,000 typical |
| Lockup | Up to 52 weeks | 3, 5, 7, or 10 years |
| Compounding | Reset every 4-52 weeks | Locked rate for full term |
| Best for | Cash you might need | Cash you won't |
Why the MYGA usually wins for 3-10 year money
Yield premium (100-140 bps)
On $250K over 5 years at simple-rolling assumptions: T-bills (rolling 52-week at 4.05%, assuming flat rates) generate roughly $54,800 of pre-tax interest. A 5-year MYGA at 5.50% generates $76,260 of pre-tax interest. Difference: $21,460 of pre-tax interest, plus the MYGA grows tax-deferred so the difference compounds.
Tax deferral (worth 30-60 bps in itself)
T-bill interest hits your 1099-INT every January. You pay federal tax on it that year regardless of whether you reinvest. MYGA interest accrues inside the contract, untaxed, until withdrawal. For a retiree already in a high marginal bracket from RMDs and Social Security, deferring $15K per year of taxable interest can shave 4-8% off effective annual yield drag.
Rate certainty
The T-bill yield resets every 4-52 weeks. If the Fed cuts and the curve drops, your next bill earns less. The MYGA locks 5.50% for the full term. In a falling-rate environment (which 2026 is, by consensus), this asymmetry favors the MYGA.
Why the T-bill wins when liquidity matters
Weekly secondary market
You can sell any T-bill on the secondary market any business day. For 4-26 week paper, the price stays near par regardless of rate moves. A MYGA's free withdrawal is 10% of the contract per year - take more and you hit a surrender charge schedule (typically 9% in year 1, declining 1% per year).
State tax exemption
T-bill interest is exempt from state and local income tax under 31 U.S.C. §3124. MYGA gains are taxable when withdrawn (federal and usually state). For very high state tax brackets, this narrows the T-bill's yield deficit somewhat. It does not close it - a 100-140 bp MYGA premium is too wide for any state-tax exemption to flip on its own, even at California's 13.3% top bracket. But it tightens the gap.
Lower minimum
$100 vs $10,000-$25,000. For a younger saver building a position, the T-bill works incrementally. The MYGA is a lump-sum tool.
Worked example - $250,000 over 5 years
California resident, top federal + 10.3% state
Option A: Rolling 52-week T-bills at 4.05% (assume flat rates).
- Annual pre-tax interest: $10,125
- Federal tax 37%: $3,746
- State tax 0% (exempt): $0
- After-tax annual: $6,379
- 5-year after-tax total: $31,895
Option B: 5-year MYGA at 5.50% (annual compounding).
- Ending value at year 5: $326,740 (gross)
- Gross gain over 5 years: $76,740
- Federal tax 37% (paid at year-5 withdrawal): $28,394
- State tax 10.3% (CA): $7,904
- After-tax gain: $40,442
MYGA wins by $8,547 over 5 years on $250K - even after losing the T-bill's state-tax exemption. The MYGA's yield premium and tax deferral overwhelm the T-bill's state-tax shield.
Texas resident (no state tax)
T-bills: $31,895 after-tax (same as CA). MYGA: $48,346 after-tax (no state tax). MYGA wins by $16,451 over 5 years - a 14% bigger gap than for the California resident, because no-tax states don't get to use the T-bill's state-exemption advantage.
When you should NOT pick the MYGA
- You might need the money within 3 years. Surrender charges are real - if you take 50% out in year 2 of a 5-year MYGA, you'll forfeit 5-8% of the excess withdrawal.
- You're under 59 1/2 and might withdraw early. IRS adds a 10% penalty on the gain portion of pre-59 1/2 withdrawals, on top of carrier surrender charges. T-bills have no IRS age penalty.
- You're holding for shock-absorber emergency cash. Emergency funds should be liquid. Use T-bills, MMFs, or HYSAs - not MYGAs.
- You're parking less than $25K. Most carriers have $10K-$25K minimums; below that you don't even qualify.
- You expect rates to rise sharply. Locking 5.50% for 7 years is a loser if 7-year MYGA rates rise to 7%. T-bills capture rising rates every reset.
The hybrid playbook
Most retirees should split this. Example for a $750K cash position:
- $250K in rolling 4-26 week T-bills (emergency + 12-month liquidity)
- $250K in a 3-year MYGA at 5.30% (medium-term, partial rate lock)
- $250K in a 7-year MYGA at 5.65% (long-term yield premium capture)
This gets you a blended ~5.05% yield, full state-tax exemption on the $250K T-bill tranche, surrender-charge protection on 2/3 of the position (each MYGA's 10% free withdrawal covers $25K-$50K of any-year access without penalty), and rate-cycle diversification.
FAQ
Is the MYGA's state guaranty fund as good as Treasury direct backing?
No - they're different in structure but similar in practical safety. The state guaranty fund covers $250K-$300K per owner per carrier (varies by state). The Treasury has unlimited backing. For amounts above the guaranty limit, split across multiple A-rated carriers. No A-rated MYGA carrier has defaulted in the modern era.
Can I 1035 exchange a MYGA at maturity?
Yes. At MYGA term-end (or even during the term, with surrender charges), you can transfer the proceeds tax-free into another annuity under Section 1035 of the IRC. This is how to extend tax deferral indefinitely. T-bills have no analogous mechanism.
What happens if rates rise and I'm locked in a MYGA?
You're locked at the original rate. Some MYGAs have market-value adjustment (MVA) provisions that increase the surrender charge if rates have risen significantly. Read the contract - non-MVA MYGAs are preferable for this reason.
Are MYGA gains state-tax exempt like T-bills?
No. MYGA gains are taxable federally and at the state level when withdrawn. The state-tax exemption is unique to direct Treasury securities. MYGAs offer tax deferral, not tax exemption.
How long does it take to surrender a MYGA?
10-30 business days from the surrender request, depending on carrier. T-bills can be sold any business day with T+1 settlement.
Can I ladder MYGAs the same way I ladder T-bills?
Yes. A MYGA ladder of 3-year, 5-year, and 7-year contracts spreads renewal risk and lets some portion roll annually. Most retirees implementing a MYGA strategy ladder rather than putting everything in one term.
Are MYGAs FDIC-insured?
No. They're insurance contracts, not bank deposits. State guaranty funds provide analogous coverage at $250-300K per owner per carrier. Always verify the carrier's AM Best rating is A- or better.
What's the biggest mistake people make with MYGAs?
Putting too much in one contract above the state guaranty limit, or buying a MYGA with money they actually need access to within the surrender period. The product is right for 3-10 year locked money. It's wrong for 12-month money or for emergency reserves.
Related reading
- T-bills explained
- 5-year Treasury vs 5-year MYGA head-to-head
- TIPS vs MYGA
- 10-year Treasury vs MYGA
- Best MYGA Rates 2026
- CD vs MYGA - tax deferral economics
See what 100-140 bps over 5 years looks like at your dollar amount
Hans Goldstein, independent licensed insurance producer.
T-bills are right for cash you might need. MYGAs are right for cash you won't. The yield gap on 3-10 year money is structurally 100-140 basis points - and it compounds tax-deferred. Worth running both numbers at your state bracket before you decide.
Drop your info and within 24 hours you'll get a written side-by-side: the Treasury option vs. the top 3 MYGAs from A-rated carriers at the same term, end-of-term math at your actual dollar amount, and after-tax yield computed at your state bracket. No pitch, no follow-up calls unless you ask.
Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed insurance producer appointed with multiple A-rated carriers
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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.