What Makes Fixed Indexed Annuities Different from Fixed Annuities?
Fixed annuities and fixed indexed annuities (FIAs) are both great options for conservative investors. They protect your principal, offer tax-deferred growth, and can generate guaranteed retirement income. But they differ in one key way: how your interest is calculated.
If you’re comparing options, it’s essential to understand these differences—because the right choice depends on your goals.
Fixed Annuities: Guaranteed Growth, Simple Structure
A fixed annuity offers a guaranteed interest rate for a set number of years—typically 3, 5, or 7. For example, if you invest $100,000 into a 5-year fixed annuity paying 5.40%, you’ll earn $5,400 annually, compounded. The rate is locked in, the returns are predictable, and there’s no market risk.
These are often used to preserve capital, avoid market volatility, and generate predictable income or accumulation.
Fixed Indexed Annuities: Market-Linked Potential, No Market Loss
A fixed indexed annuity ties your growth to a market index—like the S&P 500. If the index performs well, you earn interest based on a formula (with caps, spreads, or participation rates). If the market performs poorly, your account earns zero—but never loses value.
This gives you a blend of safety and upside potential. FIAs are great for long-term savers who want more growth than a fixed annuity—but without stock market risk.
At Diversified Insurance Brokers, we help clients compare side-by-side quotes, crediting strategies, and income rider options to find the annuity that fits their retirement plan best.
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FAQs: What Makes Fixed Indexed Annuities Different?
What makes a fixed indexed annuity different from other annuities?
A fixed indexed annuity (FIA) is different because it protects your principal from market losses while giving you the potential to earn interest based on an external market index. Unlike variable annuities, FIAs have no direct market exposure, and unlike MYGAs, the credited interest can vary depending on index performance.
Do fixed indexed annuities protect my principal?
Yes. All FIAs include a 0% floor, meaning your account value cannot decline due to market volatility. Even if the index performs poorly, you never lose principal or previously credited interest.
How do FIAs earn interest?
FIAs credit interest based on the performance of an index such as the S&P 500®, using tools like caps, participation rates, and spreads. These limit how much of the index gain is credited, but they ensure protection against losses.
What makes FIAs different from MYGAs?
MYGAs provide a guaranteed fixed interest rate for a set period, while FIAs offer growth potential linked to index performance. FIAs may outperform in strong markets, while MYGAs offer predictable returns regardless of market conditions.
Are fixed indexed annuities good for retirement income?
Yes. Many FIAs include optional income riders that guarantee lifetime income. They are often used to complement Social Security or as part of a broader income strategy. Learn more at our page on how Social Security and annuities can work together.
What fees do FIAs have?
Most FIAs have no annual policy fees. Fees typically apply only when you add optional benefits such as guaranteed income riders or enhanced withdrawal features.
Can FIAs lose value?
No. Even in severe market downturns, FIAs guarantee that your contract value will not decrease due to market losses.
Why do some FIAs have caps, participation rates, or spreads?
These limit how much interest is credited, helping insurers manage risk while providing growth potential and principal protection. For more, see What Is an Annuity Cap Rate?
Are FIAs better than variable annuities?
For many retirees, yes. FIAs avoid stock market losses and typically have lower risk and lower fees than variable annuities, while still offering growth linked to an index.
How can I compare different fixed indexed annuities?
Comparing FIAs involves reviewing crediting methods, renewal rate history, caps, participation rates, spreads, income rider options, and financial strength of the issuing company. You can begin by reviewing today’s top annuity rates.
About the Author:
Jason Stolz, CLTC, CRPC, is a senior insurance and retirement professional with more than two decades of real-world experience helping individuals, families, and business owners protect their income, assets, and long-term financial stability. As a long-time partner of the nationally licensed independent agency Diversified Insurance Brokers, Jason provides trusted guidance across multiple specialties—including fixed and indexed annuities, long-term care planning, personal and business disability insurance, life insurance solutions, and short-term health coverage. Diversified Insurance Brokers maintains active contracts with over 100 highly rated insurance carriers, ensuring clients have access to a broad and competitive marketplace.
His practical, education-first approach has earned recognition in publications such as VoyageATL, highlighting his commitment to financial clarity and client-focused planning. Drawing on deep product knowledge and years of hands-on field experience, Jason helps clients evaluate carriers, compare strategies, and build retirement and protection plans that are both secure and cost-efficient.
