What is a Fixed Annuity?
Over 100 Carriers to Quote From. Here are a few of them!
When considering fixed annuities, knowing “What is a Fixed Annuity” is clearly an important question to ask. A fixed annuity is an insurance contract that credits a guaranteed interest rate for a set period while protecting your principal from market losses. If you’re looking for predictable growth, tax deferral, and simple terms, understanding what it is—and how it compares with CDs and other safe options—can help you decide if it belongs in your retirement plan.
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What Is a Fixed Annuity (Definition)
A fixed annuity is issued by an insurance company. You deposit a premium and the insurer guarantees a minimum interest rate for a period (or each year), grows your money tax-deferred, and lets you choose from options at the end of the term—renew, transfer via 1035 exchange, take withdrawals, or convert to income.
Types of Fixed Annuities
- MYGA (Multi-Year Guaranteed Annuity): CD-like design that locks a fixed rate for a specific term (e.g., 2–7 years). Simple and predictable.
- Traditional Fixed Annuity: Company declares a rate annually (with a contractual minimum). Useful for long-term holding with flexibility.
- Fixed Indexed Annuity (FIA): Principal protection with interest credited using an index formula (caps/participation rates). Not a “fixed rate,” but popular with conservative investors seeking potential for higher credited interest.
How a Fixed Annuity Works
- Guaranteed rate/term: Choose the term that fits your time horizon (common: 3, 5, 7 years for MYGAs).
- Tax deferral: Interest isn’t taxed each year (for non-qualified money); taxation occurs when you take distributions.
- Access to funds: Most contracts allow annual free withdrawals (often up to 10%). Surrender charges apply above that during the term.
- Income options later: At maturity, you can renew, take cash, 1035 exchange to a new annuity, or convert to monthly income. You can also pair a fixed annuity with a separate lifetime income strategy.
Fixed Annuity vs CD vs FIA (Quick Comparison)
| Feature | Bank CD | Fixed Annuity (MYGA) | Fixed Indexed Annuity |
|---|---|---|---|
| Principal Protection | FDIC (limits apply) | Insurer guarantee | Insurer guarantee |
| How Interest Is Credited | Fixed | Fixed (term-locked) | Index-linked (caps/participation) |
| Tax Deferral (Non-Qualified) | No | Yes | Yes |
| Early Access | Bank penalties | 10% free; surrender charges above | 10% free; surrender charges above |
| Income Features | None built-in | Annuitize or transfer at term | Often offers income riders/annuitization |
When a Fixed Annuity Makes Sense
- Capital preservation: You want principal protection with predictable growth.
- Tax efficiency: You prefer to defer taxes on interest until withdrawal.
- CD alternatives: You’re open to insurer-issued contracts for potentially higher after-tax yield than a CD of similar term.
- IRA sleeve: You want a conservative anchor in an IRA or rollover.
How to Choose the Best Fixed Annuity
- Term & rate: Align the guarantee period with your timeline (build a ladder if you want annual maturities).
- Liquidity: Confirm free-withdrawal allowances, RMD-friendly provisions for IRAs, and any market value adjustment (MVA) details.
- Issuer strength: Compare A-rated carriers and diversify by insurer/term when allocating larger balances.
- Next-step options: Know your renewal, 1035, or income choices before buying.
Preview Income Scenarios (Optional)
Some clients grow assets in a MYGA, then convert part to guaranteed income later. Use the tool below to explore income illustrations—we’ll finalize options in your custom quote.
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