A fixed annuity and a fixed indexed annuity both protect your principal from market losses, and both come from insurance companies. The difference is how they earn interest. A fixed annuity pays a stated rate you know on day one. A fixed indexed annuity (FIA) earns interest linked to a market index, limited by a cap or participation rate, with a 0% floor in down years.
What is the difference between a fixed annuity and a fixed index annuity?
A fixed annuity credits a declared interest rate that the insurer guarantees for a set term, while a fixed indexed annuity credits interest based on how a market index performs, within limits the insurer sets. With a fixed annuity, the number in the contract is the number you earn. With an FIA, your yearly credit depends on the index, so it can be zero in one year and higher in another.
Both sit in the "fixed" family of annuities, which means your money is never directly invested in the stock market and an index decline does not reduce your account value. Both have surrender periods, both grow tax-deferred, and both are backed by the claims-paying ability of the issuing insurer.
How do fixed and fixed indexed annuities compare side by side?
The short version: a fixed annuity trades upside for certainty, and an FIA trades certainty for upside potential, with the same downside protection.
| Feature | Fixed annuity (MYGA) | Fixed indexed annuity (FIA) |
|---|---|---|
| How interest is credited | Declared rate set by the insurer | Linked to an index, limited by a cap, participation rate, or spread |
| Return known in advance | Yes, for the full term | No, it depends on the index each period |
| Down market year | Rate still credited | 0% credited, no loss from the index |
| Upside potential | Limited to the stated rate | Up to the cap or participation limit |
| Typical surrender period | 2 to 10 years | Often 5 to 10 years |
| Can crediting terms change | Rate locked for the guarantee term | Caps and participation rates can reset, often yearly, within contract minimums |
| Annual fees | Usually none | None on many base products; optional riders charge a fee |
| Income rider options | Rare | Common |
| Complexity | Low | Moderate to high |
How does a fixed annuity (MYGA) earn interest?
A MYGA (multi-year guaranteed annuity) pays one fixed rate for the entire guarantee term, so you know exactly what the contract will be worth at the end. If you lock a 5-year MYGA, the insurer credits that rate every year for five years, regardless of what markets or interest rates do. There is nothing to monitor and no index to track.
That predictability is the point. A MYGA works much the way people expect a guaranteed savings product to work, except it is an insurance contract with a surrender charge for early exits instead of a bank product. Our MYGA guide covers terms, renewals, and what happens when the guarantee period ends.
How does a fixed index annuity earn interest?
An FIA tracks an index, most often the S&P 500, over a crediting period (usually one year) and credits you a portion of any gain, subject to a cap, a participation rate, or a spread. If the index ends the period lower, your credit is 0% and your account value does not drop from the index.
The three limits work like this:
- Cap: the maximum you can be credited for the period. In a hypothetical example, if the cap is 8% and the index rises 12%, you are credited 8%.
- Participation rate: the share of the index gain you receive. With a hypothetical 50% participation rate and a 12% index gain, you are credited 6%.
- Spread: a percentage subtracted from the index gain. With a hypothetical 3% spread and a 12% gain, you are credited 9%.
The insurer sets these terms and can change them at each renewal, within the minimums written into the contract. That is the main thing FIA buyers underestimate: the cap that attracts you in year one is not promised for year five. Interest credited in prior years is locked in, though, so gains do not disappear in a later down year. Our explainers on fixed indexed annuities and caps, spreads, and participation rates go deeper into crediting methods.
Which earns more, a fixed annuity or a fixed index annuity?
Neither wins every time: a fixed annuity gives you a known return, while an FIA can earn more in strong index years and less in flat or down years. Over a full term, many FIA results land somewhere between a MYGA rate and what the market returned, but that depends on the index path and on how the insurer resets caps along the way.
Here is a current reference point for both, drawn from the products we track as of October 2026: the top 5-year MYGA rate is 6.45% with a median of 5.70%, and comparable one-year S&P 500 caps run up to 17.00%.
Those two numbers are not apples to apples. A MYGA rate is what you earn. An FIA cap is the most you could earn in one period, and some years you will earn zero. Comparing a cap to a MYGA rate as if they were the same thing is the most common mistake buyers make. Current MYGA rates by term are on our rates page, and our guide to what counts as a good annuity rate explains how to judge an offer.
Is a fixed indexed annuity riskier than a fixed annuity?
Neither puts your principal at market risk, but an FIA carries more uncertainty about your return and usually more complexity. With a MYGA, the only real surprises come from leaving early. With an FIA, you also face the chance of several low-crediting years, cap reductions at renewal, and, if you add one, a rider fee that is deducted even when the index credits nothing.
Both share the same structural risks: surrender charges, possible market value adjustments, and reliance on the insurer's financial strength. Our article on whether you can lose money in an annuity walks through each of those in detail.
Is a fixed or a fixed indexed annuity a better fit?
The better fit depends on whether you value a guaranteed number or the chance at a higher one.
A fixed annuity (MYGA) tends to fit when:
- You want a known, guaranteed rate for a set number of years.
- You are comparing against CDs or bonds for safe money.
- You want the simplest contract with no moving parts.
- Your horizon is shorter, roughly 2 to 5 years.
A fixed indexed annuity tends to fit when:
- You have a longer horizon, often 7 years or more.
- You accept some years of zero interest in exchange for upside potential.
- You want access to a guaranteed lifetime income rider later on.
- You are willing to learn how caps and participation rates work and to watch renewal terms.
Neither tends to fit money you might need in the next few years, since both carry surrender charges. For that, a more liquid account is usually the better home.
Can you own both a fixed and a fixed indexed annuity?
Yes, and many buyers split their safe money between the two. A common approach puts a portion in a MYGA for a guaranteed rate and a portion in an FIA for upside potential, or uses a MYGA for nearer-term goals and an FIA for money meant to generate income later. Splitting also spreads your money across more than one insurer.
You can compare products in each category in our fixed annuity reviews and fixed indexed annuity reviews, or use our free comparison tools to see what fits your timeline. If you want help reading an FIA's crediting options or renewal history, a licensed advisor can walk through them with you on a call.
Sources
- U.S. Securities and Exchange Commission, Investor Bulletin: Indexed Annuities
- FINRA, Investor Insights on fixed and indexed annuities
- National Association of Insurance Commissioners (NAIC), Annuity Buyer's Guide
- Internal Revenue Service, Publication 575, Pension and Annuity Income