Guide
Fixed annuities
Everything you need to know about fixed annuities — how they work, what types are available, how they compare to CDs, and how to choose the right one for your retirement plan.
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What is a fixed annuity?
A fixed annuity is a contract with an insurance company that guarantees a set interest rate on your money for a specified period — typically 3 to 10 years.
You make a lump-sum deposit, and the insurer credits your account at a guaranteed rate that will not change during the contract term. Your principal is fully protected — regardless of what happens in the stock market, your money cannot lose value.
The simple version
Think of a fixed annuity as a CD from an insurance company. You lock in a guaranteed rate, your money grows safely, and you get it back (plus interest) at the end of the term.
The key differences: fixed annuities typically offer higher rates and tax-deferred growth.
How a fixed annuity works
The accumulation phase
- You deposit your premium (minimums typically $5,000–$25,000)
- The insurer credits your account at the guaranteed rate
- Money compounds tax-deferred — no annual tax on interest
- Most contracts allow 10%/year penalty-free withdrawals
The distribution phase
- Withdraw your money at the end of the guarantee period
- Roll it into a new annuity via a tax-free 1035 exchange
- Let it renew at the insurer's current rate
- Annuitize into a guaranteed lifetime income stream
Understanding fixed annuity rates
Declared Rate
Minimum Guaranteed Rate
Renewal Rate
Types of fixed annuities
Multi-Year Guaranteed Annuity (MYGA)
Traditional Fixed Annuity
Fixed Indexed Annuity (FIA)
Fixed annuities vs. CDs
| Feature | Fixed Annuity (MYGA) | Bank CD |
|---|---|---|
| Issued By | Insurance company | Bank or credit union |
| Typical Rates (5-yr) | 5.00% – 6.30% | 3.50% – 4.15% |
| Tax Treatment | Tax-deferred until withdrawal | Taxed annually on interest |
| Insurance / Backing | State guaranty associations (up to ~$250K) | FDIC insured (up to $250K) |
| Early Withdrawal | Up to 10%/yr penalty-free; surrender charges beyond | Penalty (typically 3–6 months interest) |
| Minimum Investment | $5,000 – $25,000 typical | $500 – $1,000 typical |
| Contribution Limits | None (non-qualified) | None |
| At Maturity | Withdraw, renew, 1035 exchange, or annuitize | Withdraw or renew |
| Probate | Bypasses probate (named beneficiary) | Subject to probate unless POD |
Bottom line
Comparing a 5-year MYGA at 5.65% to a 5-year CD at 4.05%, a $100,000 deposit would earn roughly $8,000–$12,000 more in the MYGA over the term.
And that's before factoring in the tax-deferral advantage.
Key benefits of fixed annuities
Guaranteed Rate of Return
Your interest rate is set by the insurer and contractually guaranteed. No market risk, no surprises.
Principal Protection
Your initial investment is 100% protected. Even in a market crash, your account value cannot decline.
Tax-Deferred Growth
Interest compounds without annual taxation. You control when you pay taxes by timing withdrawals.
Higher Rates Than CDs
Fixed annuities consistently offer rates 1–2% higher than comparable bank CDs, especially at 3–7 years.
No Annual Fees
MYGAs and traditional fixed annuities carry no annual management fees, expense ratios, or hidden charges.
No Contribution Limits
Unlike IRAs and 401(k)s, non-qualified fixed annuities have no cap on how much you can invest.
Before you buy
Four things to weigh first
Liquidity: Your money is committed for the surrender period. Only the penalty-free withdrawal (typically 10%/year) is accessible without charges.
Renewal rates: On traditional fixed annuities, watch for rate drops at renewal. Always check the guaranteed minimum rate in your contract.
Tax timing: Withdrawals are taxed as ordinary income. Large withdrawals could push you into a higher bracket — plan distributions carefully.
Carrier strength: Fixed annuities are backed by the insurer, not the FDIC. Check the carrier's AM Best rating before purchasing.
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