A 5-year MYGA at an A-rated issuer credits roughly 70 basis points more than a 2-year from the same carrier, and then the curve stops paying: 7-year and 10-year terms credit exactly what the 5-year does (AnnuityExpertAdvice.com, June 2026). Against $461.3 billion of 2025 retail annuity sales, that flat segment is the binding product-design constraint, because it is where a carrier runs out of anything to offer in exchange for a longer lockup.

Key Takeaways

  • 5.70% at 5, 7 and 10 years is the June 2026 top A-rated MYGA rate at all three terms. The marginal reward for accepting five more years of surrender charges is zero basis points.
  • $461.3 billion in 2025 U.S. retail annuity sales, up 6 percent and a fourth consecutive record, sits on a product whose economics assume the consumer will trade liquidity for yield.
  • A 7 percent upfront commission amortizes at roughly 0.70 percent a year over a 10-year product and 1.40 percent over a 5-year one. Shortening the term doubles the distribution load on the same investment spread.
  • 11.20 percent was the top S&P 500 one-year point-to-point FIA cap in June 2026, on a 7-year surrender schedule. Comparable 5-year products clear 9 to 10 percent, a 100 to 200 basis point gap that is the option budget made visible.
  • 10 percent a year of penalty-free withdrawal removes nearly 27 percent of original premium over a 3-year MYGA, shrinking both the investable base and the commission recovery runway.

Where the Compensation for Lockup Stops

Surrender charges are a pricing enabler before they are anything else. A carrier crediting 5.70 percent for five years buys five-year or longer investment-grade paper to back it. An early exit forces the carrier to sell bonds priced to hold, possibly at a capital loss, or replace the capital at current cost. The charge covers that liquidation.

The June 2026 MYGA board publishes the whole tradeoff in one column.

Surrender Term Best A-rated Rate Incremental Pickup vs. Prior Term
2-year 5.00% —
3-year 5.45% +45 bps
5-year 5.70% +25 bps
7-year 5.70% 0 bps
10-year 5.70% 0 bps

The 45-basis-point pickup from 2-year to 3-year and the further 25 from 3-year to 5-year are real compensation. Above five years there is none. The bond market is not paying carriers to extend past that point under current conditions, so carriers cannot pay policyholders either.

Consumers have read this correctly. MYGA sales reached $160.6 billion in 2025, up 5 percent and the largest single annuity segment (LIMRA, January 2026), concentrated at exactly the 3-year and 5-year terms where the yield pickup accrues.

The Surrender Period Is the Option Budget and the Commission Runway

For indexed products the same tradeoff appears as a cap rate rather than a credited rate. Premium goes into general account bonds; the earned rate, net of expenses and the guaranteed minimum, is the option budget that buys index exposure. Longer surrender terms permit longer assets, higher earned rates and a larger budget.

The gap is measurable. Top S&P 500 one-year point-to-point FIA caps reached 11.20 percent in June 2026, with the lead product on a 7-year schedule from Minnesota Life/Securian (Annuity.org). A-rated 5-year schedules clear 9 to 10 percent. That 100 to 200 basis point spread is the option budget differential, expressed as the consumer's participation ceiling.

Commission amortization runs on the same clock. A 5.5 percent upfront commission on a 3-year MYGA has to earn back 1.83 percent per year of investment spread before the carrier turns positive on distribution. The same commission on a 7-year FIA earns back at 0.79 percent. Shorter terms therefore compress credited rates and cap rates twice over: once through asset duration and once through the distribution load.

The reserving consequence follows from the first squeeze rather than the second. VM-22 minimum reserves for non-variable deferred annuities are sensitive to the credited rate against the guaranteed minimum and to the assumed reinvestment path. A carrier that has trimmed credited rates on 3-year and 5-year business to absorb a 1.83 percent distribution load carries a thinner inception margin, and it carries it on liabilities that reprice in 2030 rather than a decade later. Reinvestment risk is the exposure the surrender period actually allocates.

The Mix Is Shortening Faster Than the Asset Book Can Follow

Fixed-rate deferred sales fell 12 percent to $35.6 billion in Q1 2026 while RILA rose 20 percent to $21.1 billion (Insurance Business, 2026). RILA reached $79.6 billion for 2025, up 20 percent and ten times its volume of a decade ago. Its surrender terms typically run 5 to 7 years against FIA's 5 to 10.

A carrier that built a MYGA-heavy liability book in 2023 now faces a client base buying RILA on shorter terms and a bond portfolio matched to the old profile. Indexed products were 45 percent of the market in 2025 against 24 percent a decade ago, which means for nearly half the market the surrender exposure now arrives through option budget mechanics and needs stochastic scenarios stressing rates and equity volatility together, not a deterministic credited-rate test.

Free-withdrawal utilization is the assumption most likely to be stale. Most fixed annuities permit penalty-free withdrawals of up to 10 percent of account value a year throughout the surrender period. On a 3-year MYGA, full utilization removes close to 27 percent of original premium before the term ends. A utilization assumption set in the pre-2020 rate environment understates cash demands on precisely the short-term products consumers are now buying.

The disclosure layer compounds it. FINRA's 2025 Annual Regulatory Oversight Report flagged firms failing to disclose new surrender periods on additional premium deposits into existing contracts, which restarts the schedule on the added amount. The clean fix, a diversified book across 3-year, 5-year, 7-year and 10-year cohorts written in overlapping years, requires consumers to choose the longer terms. At a flat curve above five years, there is nothing to pay them with.

Further Reading

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