What is a fixed annuity? It’s an insurance contract designed for predictable, principal-protected growth. You deposit a premium, and the insurance company credits a guaranteed interest rate for a set period—without exposure to market losses. For many conservative savers, a fixed annuity can be a simple way to pursue steady growth, potential tax deferral, and clearer terms than many investment-based alternatives.

At Diversified Insurance Brokers, we help clients compare fixed annuity options across carriers and contract designs so you can choose the right term, liquidity features, and renewal flexibility—without guesswork. A fixed annuity is not trying to behave like a stock portfolio. It is designed to create steady, contract-based growth and protect principal from market declines, which can be especially appealing when you want a “sleep-at-night” portion of your retirement strategy.

People usually start researching a fixed annuity when they want one of three things: stability, clarity, or a better way to use conservative dollars. Stability means you want interest credits that do not swing with the market. Clarity means you want to know what the guarantee is, how long it lasts, and what your access rules are. Better use of conservative dollars means you may be comparing alternatives like bank CDs, money markets, or short-duration bond funds and want to evaluate whether a fixed annuity can improve the tradeoff between rate, protection, and tax treatment.

A fixed annuity can also be used inside an IRA (qualified money) or outside an IRA (non-qualified money). The planning conversation is different in each case. Inside an IRA, the fixed annuity is often about guaranteeing a rate for a specific term while maintaining principal protection. Outside an IRA, the fixed annuity conversation often includes tax deferral, because interest inside the annuity generally does not create annual taxable income until you withdraw. Either way, the contract is built for predictability, and the details—term length, free-withdrawal rules, and end-of-term options—are where the real value or frustration can show up.

Because fixed annuities can be purchased with different objectives, the “best” fixed annuity is not always the one with the single highest headline rate. A slightly lower rate can be worth it if the contract has better liquidity, a more favorable renewal window, or features that match the way you intend to use the money. The right evaluation process compares multiple fixed annuity designs and asks one key question: “Does this contract fit the timeline and access needs for these dollars?” If the answer is yes, the fixed annuity can be a very clean solution.

What Is a Fixed Annuity?

A fixed annuity is issued by an insurance company. You deposit a premium, and the insurer credits interest based on the contract’s guarantee structure. The defining feature of a fixed annuity is that the contract is designed to protect principal from stock market losses while crediting interest using a guaranteed rate approach. That means you are not exposed to market drawdowns in the way you would be with stocks, mutual funds, or most bond funds. Instead, your return is driven by the terms of the contract you choose.

In practice, a fixed annuity is often used to create a stable, conservative “anchor” inside a broader plan. Some clients use a fixed annuity as a CD-style holding place for retirement assets they do not want exposed to volatility. Others use a fixed annuity to reduce the tax friction of conservative growth on non-qualified money, because interest can build without creating annual taxable income until you withdraw. Others simply want clearer terms: a guarantee period, a stated rate, and a defined set of access rules that are easy to understand once the contract is selected.

Most fixed annuity contracts include an accumulation phase where your premium earns interest. During that phase, your account value typically grows in a steady, predictable way according to the guarantee terms. Many contracts also include access rules that allow a certain amount of annual free withdrawal, often up to 10% per year, though the exact amount depends on the contract. Withdrawals above the free amount during the surrender period can trigger surrender charges. These rules are not “hidden,” but they must be reviewed carefully because they affect how flexible the fixed annuity will feel in real life.

Another important characteristic of a fixed annuity is the end-of-term decision point. At the end of the guarantee period, many contracts provide a renewal window where you can choose what happens next. Depending on the contract, you may be able to renew, take withdrawals, reposition to another annuity, or shift strategies. A good fixed annuity is one where the renewal process and options match the way you want to manage the money over time. This is where working with advisors can be helpful, because the differences among contracts are often not visible in a single headline rate.

Types of Fixed Annuities

While “fixed annuity” is often used as a general term, there are a few common structures that people compare when they are shopping for conservative annuity solutions. The most common “rate shopping” structure is the MYGA, which locks a rate for a set number of years. Another structure is a traditional fixed annuity with declared rates, often declared annually with a minimum guarantee floor. A third category that is frequently compared in the same research process is the fixed indexed annuity, which protects principal but credits interest using an index formula. Even though the fixed indexed annuity is not a fixed rate annuity, people still compare it because the goal is often similar: principal protection with an interest-crediting approach that can be easier to tolerate than market risk.

MYGA (Multi-Year Guaranteed Annuity): A MYGA is sometimes described as a “term annuity” because it locks in a guaranteed rate for a specific period, often 2–7 years. Many people use MYGAs as a CD-style alternative inside or outside an IRA. The primary advantage of a MYGA is clarity: you know the rate, you know the term, and you can align the term with your timeline. The key considerations are access rules during the term and what happens at the end of the term.

Traditional Fixed Annuity: A traditional fixed annuity often has a declared rate that may be set annually, while maintaining a contractual minimum. This structure can appeal to people who prefer flexibility and are not strictly shopping for a single “locked term.” The tradeoff is that a declared-rate product may not provide the same certainty about future renewal rates as a MYGA, so it is best when the goal is steady, conservative accumulation without requiring a single fixed term commitment.

Fixed Indexed Annuity (FIA): A fixed indexed annuity is principal-protected and credits interest using an index formula (caps, participation rates, or spreads). It can be compared alongside fixed annuity options when someone wants conservative growth potential but still wants to avoid market downside risk. The main planning point is that the crediting method is different, and results depend on index performance and the contract’s crediting terms. For someone who wants maximum simplicity, a fixed annuity may be the better match. For someone who is comfortable with an index-linked formula but wants principal protection, an FIA may be evaluated in the same conversation.

How a Fixed Annuity Works

A fixed annuity is straightforward once you view it as a contract with a few core moving parts. First, you choose a term and a guarantee style. Many buyers pick 3-, 5-, or 7-year terms because those terms often balance rate competitiveness with flexibility. Some buyers choose to spread money across multiple terms, creating a “ladder,” so portions mature in different years. That approach can provide more flexibility while still allowing meaningful portions of the money to earn strong fixed annuity rates.

Second, interest credits without market losses. That is the core feature of a fixed annuity: your principal is not reduced by stock market declines, and interest is credited based on the contract terms. This does not mean the annuity is “risk free” in every sense—every financial product has tradeoffs—but it does mean the account value is not tied to market drawdowns the way most investments are.

Third, you follow the contract’s access rules. Most fixed annuities allow annual free withdrawals (commonly up to 10% per year, depending on contract). Withdrawals above the free amount during the surrender period can trigger surrender charges. That surrender period is a key decision variable because it determines how long the contract expects the money to stay in place. A fixed annuity works best when the surrender period aligns with your intended timeline for that portion of assets.

Fourth, you decide what happens at maturity. At the end of the guarantee period, the contract enters a decision window. This is where you may renew, take withdrawals, reposition to a new annuity, or shift strategies. Many people only focus on the rate and term, but the end-of-term options and renewal window matter because they affect how easy it is to manage the fixed annuity over time.

Fixed Annuity vs CD vs FIA

Many people compare a fixed annuity to a bank CD because both can offer a known rate for a defined period and both can feel conservative. The difference is that a fixed annuity is an insurance product with insurer guarantees, while a CD is a bank product with bank rules. The tax treatment can differ as well, especially for non-qualified money, because CD interest is typically taxable annually, while fixed annuity interest can be tax-deferred until withdrawal. Another difference is access rules: CDs have bank penalty rules for early withdrawal, while fixed annuities have contract-defined free-withdrawal provisions and surrender charge schedules.

Many people also compare fixed annuities to fixed indexed annuities because both are principal-protected insurance contracts. The key difference is the interest-crediting approach. A fixed annuity credits a guaranteed rate structure. A fixed indexed annuity credits interest based on an index formula, subject to caps, participation rates, or spreads. Some people prefer the simplicity of a fixed annuity. Others are comfortable with the indexed formula in exchange for potential variability in interest credits. The right choice depends on whether your priority is maximum clarity or a different crediting method with principal protection.

If you are evaluating these options, the most important step is to keep the objective consistent. If your objective is principal protection and predictable growth, a fixed annuity will often be the cleanest comparison. If your objective is principal protection with an index-linked crediting formula, then the comparison shifts. The goal is not to label one product as “better.” The goal is to match the contract structure to the dollars, the timeline, and the role those dollars play in your overall plan.

When a Fixed Annuity Makes Sense

A fixed annuity makes sense when the purpose of the dollars is conservative growth and stability. If you want capital preservation, predictable accumulation, and contract-based guarantees, the fixed annuity structure aligns with that objective. If you like the idea of earning interest without market downside exposure, the fixed annuity is designed for exactly that. If you are managing risk as you approach retirement—or if you are already in retirement and you want to reduce volatility—fixed annuity allocations can serve as a stabilizing component.

Fixed annuities are also commonly used when tax deferral is important for non-qualified money. If you are holding conservative assets and you dislike paying taxes each year on interest, tax deferral can improve after-tax outcomes over time. That does not mean you “avoid” taxes; it means you control the timing of taxation because interest is generally taxed when withdrawn rather than annually as it accrues. That control can be valuable when you are coordinating income across retirement years.

Time-horizon matching is another key reason a fixed annuity makes sense. If you have money you can commit for a known term and you value clarity, a fixed annuity can be an effective solution. The contract is simplest when the timeline is clear. If you anticipate needing frequent or unpredictable access to principal, you may need to consider how free withdrawal provisions and surrender schedules fit your needs before you select a contract.

How to Choose the Best Fixed Annuity

Choosing the best fixed annuity begins with identifying the job the annuity will do. Is it a “parking place” for conservative retirement dollars? Is it a stable portion of a ladder strategy? Is it a contract you may later reposition as part of income planning? Once the job is clear, the contract selection becomes much easier because you can compare terms that matter to that job.

Term and timing: Match the guarantee period to your goals. Many people like to build a ladder, where different parts of the money mature at different times. A ladder can reduce reinvestment timing risk and give you scheduled opportunities to reassess without forcing everything to renew at once.

Liquidity details: Confirm the free-withdrawal amount, the surrender schedule, and whether any MVA features apply if applicable. Even small differences in contract access rules can matter if you anticipate taking withdrawals or repositioning funds. The “best” fixed annuity is the one you can live with comfortably under normal conditions and still manage under changing conditions.

Carrier strength and diversification: Many clients prefer strong carriers and avoid concentrating large balances with one insurer. Diversification can be a practical risk management approach, especially when you are allocating a meaningful portion of retirement savings to conservative insurance solutions.

Exit options: Know your renewal window and next-step options before you buy. The end-of-term process can be simple or frustrating depending on contract design. A well-chosen fixed annuity should make it easy to take the next step when the term ends, whether that is renewal, withdrawal, or repositioning.

Understanding Liquidity: Free Withdrawals, Surrender Charges, and Real-Life Planning

Most fixed annuity frustrations come from one place: mismatched expectations about liquidity. A fixed annuity can be very flexible when it is matched to the right dollars, but it can feel restrictive when someone expects “full access at any time.” The contract typically balances strong guarantees with a surrender period, and the surrender period is the tradeoff that supports the guaranteed interest structure. That does not mean you are “locked up” with no access. Many fixed annuity contracts include annual free withdrawal provisions, but the details matter.

For example, many fixed annuities allow a portion of the account value to be withdrawn each year without surrender charges. This can be useful for planned withdrawals or unexpected needs. However, withdrawals above that free amount during the surrender period can trigger surrender charges. If you are building a fixed annuity ladder, this is often less stressful because you know certain portions will mature in different years, which can create natural liquidity points without forcing early withdrawals.

Another planning point is that some people hold fixed annuities as a stable reserve that they do not expect to touch. In that case, the surrender schedule may matter less. Others want the flexibility to take partial withdrawals, reposition strategies, or coordinate distributions with tax planning. In those cases, the free withdrawal amount, the surrender schedule, and the renewal window become critical selection criteria. This is why a fixed annuity quote comparison should not be limited to “rate and term.” A complete comparison looks at how the contract behaves if life changes.

When you evaluate a fixed annuity realistically, you are not just evaluating the best-case scenario. You are evaluating how the contract works in normal retirement life: minor changes, shifting income needs, and periodic reassessment. The right contract is the one that supports your plan without requiring perfect predictability. That is why contract design matters as much as the headline rate, especially when you are committing meaningful retirement dollars.

Tax Treatment and Timing: How Fixed Annuities Can Change After-Tax Results

Fixed annuities are often discussed in the context of tax deferral, especially when non-qualified money is used. The practical advantage is not that taxes disappear; it is that taxation is generally delayed until you withdraw. For conservative money that would otherwise generate taxable interest each year, tax deferral can be meaningful because it allows interest to compound without annual tax drag. Over time, that can improve the after-tax accumulation path compared to a taxable vehicle where you pay taxes annually on interest.

Inside an IRA, the conversation is different because the IRA itself already has tax deferral. In that case, a fixed annuity is usually used for principal protection, predictable growth, and term matching. The fixed annuity can be a way to earn a known rate for a known period without market downside exposure. The key then becomes how the annuity fits into the broader IRA distribution strategy over time.

Another important tax planning consideration is that withdrawals can change taxable income in retirement years. That is why many clients integrate fixed annuity decisions with income distribution planning. The best approach is often to run multiple scenarios, especially if you are coordinating Social Security timing, IRA distributions, and other income sources. The goal is not just a good rate; the goal is stable retirement income that lasts.

How Fixed Annuities Can Support Later Income Planning

Many people begin with a fixed annuity for accumulation and later consider how that stability can support income planning. A fixed annuity can be used as a conservative portion of retirement savings that is protected from market losses. Later, a portion of that value may be repositioned toward an income approach, depending on the plan’s needs at that time. The key is that you are not forced to guess the entire retirement plan today. You can use a fixed annuity to create stable growth now while keeping future planning options in view.

Because retirement planning is dynamic, many clients prefer to keep decisions staged. Stage one is accumulation and stability: choose a fixed annuity term that fits the near-to-mid timeline. Stage two is reassessment: at maturity, evaluate whether to renew, reposition, or adjust the strategy based on the updated retirement picture. Stage three is income planning: if guaranteed income becomes the priority, evaluate the best way to structure it at that time. This staged approach can reduce stress and improve decision quality because you are making fewer irreversible choices at once.

The income modeling tool below is designed to help you explore illustrative scenarios. It is not a replacement for a personalized quote and review, but it can be useful for understanding the relationship between age, premium, and potential guaranteed income structures. When you use the tool, you can get a feel for what “income later” might look like, and then confirm the real-world options in your custom quote comparison.

Preview Income Scenarios

Some clients use a fixed annuity for accumulation and later shift part of the value toward income planning. The tool below can help you explore illustrative scenarios—then we’ll confirm options in your custom quote.

💡 Note: The calculator accepts premiums up to $2,000,000. If you’re investing more, results increase in direct proportion — for example, doubling your premium roughly doubles the guaranteed income at the same age and options.

When you review income illustrations, it helps to keep the objective consistent. If the objective is guaranteed income later, focus on the structure and timing. If the objective is conservative accumulation, focus on rate, term, and liquidity provisions. A fixed annuity can play either role depending on how you design the plan, but the best results come from matching the contract to the objective.