Fixed index annuities had a record-breaking year, surpassing $120 billion in sales in 2024, according to LIMRA, a global trade association that supports the insurance and financial services industries. Sales are expected to remain above $100 billion in 2025.
Fixed index annuities (FIAs) offer guaranteed minimum interest rates plus the potential for additional growth based on the performance of specific market indexes, such as the S&P 500.
FIAs function similarly to certificates of deposit (CDs) but typically offer higher returns, especially in higher interest rate environments. Evidence of high returns has become evident recently, as some FIA products reached rates as high as 11% at the start of the second quarter of 2025.
“Fixed index annuities are more popular than ever. It’s not just the high interest rates. Additionally, there is so much volatility in the markets, there’s a huge wave of Baby Boomers retiring, and people want income without taking on huge risks.” said Steven Kibbel, Certified Financial Planner (CPF) and founder of Kibbel Financial.
As of 2024, FIA sales have doubled since 2021 and outsell more than a quarter of the annuity market.A
That’s no surprise, Kibbel said, noting that FIA’s high rates, particularly when compared to those offered by CDs are a “slam dunk” for investors.
“Insurers have been able to offer more competitive participation rates and higher caps, some as high as 12%,” Kibbel said. “That’s allowing people to see the upside potential. But that’s not going to last. If the Federal Reserve starts to cut, the caps will come down, and new contracts aren’t as appealing.”
While rates are attractive, so too is the stability that FIAs can offer, even if volatile markets.
Kibbell reflected on a couple in their early 60s who recently wanted to rollover a portion of their 401(k) plan.
“They were tired of stressing about market volatility,” he noted. “We used an FIA to lock in some gains, protect the principal, and establish an income floor.”
Getting Up to Speed on FIA’s
FIAs are clearly a popular choice among investors who want a level of stability and the growth potential. If you’re considering an FIA, here are several questions to ask and things to know when talking to your annuity provider or financial advisor.
What Should I Know About FIAs?
Savers and investors should understand that FIAs offer the potential for growth without the risk of losing principal, but they come with limitations.
“There’s usually a cap on the returns, meaning that while the annuity can participate in market growth, there’s a limit to how much it can earn in a good year,” said Oliver Morissey, founder of Empower Wills and Estate Lawyers.
“It’s crucial to ask providers about these caps, participation rates and whether there are any additional fees. It’s also worth discussing the annuity’s surrender period; penalties can apply if you need to withdraw funds early.”
How Are My Investment Returns Formulated?
There’s a great deal of innovation in the annuity sector, as insurers roll out more customized index strategies and tweak terms to stay competitive.
“Yet the complexity of these products hasn’t gone away,” said Elizabeth Rivelli, a personal finance and insurance expert at Best Money. “Terms vary significantly—caps, participation rates, spreads—and they can all impact your returns. Some contracts use annual resets; others use point-to-point. It’s important to understand exactly how your gains will be calculated and whether the insurer can change those terms over time.”
What’s the Relationship Between FIAs and Interest Rates?
Annuity consumers must fully understand how interest rates are tightly tied to fixed index annuities.
“Fixed index annuities offer a unique value proposition—capital protection with potential for growth tied to market indices—which makes them particularly appealing when volatility is high but bond yields are also attractive,” said Connor McDougall, CFO at Mapleworthy.com.
“From a strategic perspective, FIAs benefit from both macroeconomic tailwinds and demographic demand.”
That said, savers and investors should go beyond surface-level returns.
“The most important question to ask is how the insurer calculates credited interest—specifically, what cap rates, participation rates and spread fees apply,” McDougall said.
“These determine how much upside the policyholder actually receives. Another area to explore is liquidity: early withdrawals often come with surrender charges, so understanding access limitations is crucial for long-term planning.”
Interest rates directly influence the competitiveness of FIAs.
“When rates are high, insurers can offer more generous caps and participation terms, which enhance the product’s growth potential,” Connor McDougall added. “But when rates decline, these benefits shrink—and the product can become less attractive than other fixed income options. Also, higher rates may trigger more policy lapses as clients seek better returns elsewhere, so insurers must manage retention carefully.”
What Kind of Annuity Should I Get?
There are different types of fixed index annuities, and investors should understand their options before choosing the best one for their needs.
“Some are built for guaranteed income in retirement, while others are designed for long-term growth with protection against market loss,” said Fradel Barber, Founder and CEO of The World Changers, a financial planning and education company.
“The biggest mistake I see is someone getting an income annuity when what they really wanted was a growth annuity—or the other way around.”
Barber advises potential investors to ask annuity providers if a particular annuity matches their income and growth goals.
If someone is still a few years away from retirement, they may not need income immediately. “In that case, a growth annuity could help them grow their money safely without riding the stock market rollercoaster,” Barber said.
Other key questions to ask include:
- Is my money protected from market loss?
- What are the limitations on how much of a return I can earn (e.g., cap, participation rates and spreads)?
- Is my interest rate or crediting method guaranteed? And if so, for how long? “Some are guaranteed for one year, others for five or more,” Barber noted.
- Are there any fees, and what are the surrender charges if I need access to my money?
“The goal is to match the annuity structure to the person’s actual life plan—not just buy one because it sounds good,” Barber added.
Editor Norah Layne contributed to this article.
