Where Are You Parking Your Stash (of Cash)?

Most of my clients have it. You probably have it. The “stash.” The extra cash that’s not part of your emergency fund. You don’t have any need for it, foreseeable or otherwise, yet you refuse to “risk it” in the stock markets. You just need it to be “there.”

You may have your stash in a bank savings or money market account, although you may have moved it into a CD or Treasury securities to take advantage of inflation-spiked interest rates on offer. As of the date of this writing, interest on 6 month CDs and US Treasuries are hovering around 5.3% per year, and 3 month US Treasuries are offered with approximately the same percentage rates.

There is a way to achieve higher rates of return on your stash while keeping it protected from market volatility using a multi-year guaranteed annuity (“MYGA”).

What is a MYGA? MYGAs are the insurance industry’s answer to bank CDs. Like a bank CD or Treasury issue, a MYGA is issued with an interest rate fixed for the term of the contract. However, the tax treatment of MYGA interest is more favorable to you because it is tax deferred until it is withdrawn. By contrast, Interest on a CD (or Treasury issue) is taxed in the year it is credited, regardless of whether you withdraw it or leave it in the CD.

When your MYGA matures, you can renew or exchange it (principal and accumulated interest) and continue the tax deferral. (You can even build a ladder using multiple MYGAs with different length terms.)

As of the date of this writing, 3-year MYGAs are being offered with interest rates as high as 6% per year. (In comparison, 3 year CDs are being offered with interest rates up to 4.9%.)

Like CDs, MYGAs have no annual fees and offer principal protection. The value of the MYGA will not fluctuate during the contract term. However, unlike a CD, MYGAs are not FDIC insured. Thus, you have to assess the claims paying ability of the issuing insurance company when choosing a MYGA. (Your state’s insurance guaranty fund will also provide some protection.)

Interest rate fluctuations impact the return on your cash investments. You can lock in a favorable interest rate for a longer period of time with a MYGA.

Want to learn more about MYGAs, or whether they have a place in your investment portfolio? Give me call. I can help.