Annuity Rates

Multi-year guaranteed annuities, or MYGAs, are a type of fixed annuity that guarantees a fixed interest rate for a specified time period — usually one to 10 years — and is subject to fees, called surrender charges, that an annuity holder must pay if he or she withdraws money from an annuity before the specified time period is over.

The best MYGA rate is 2.8 percent for a 10-year surrender period, 3 percent for a seven-year surrender period, 3.2 percent for a five-year surrender period and 2.15 percent for a three-year surrender period.

Because MYGA rates change daily, Annuity.org and its partner Senior Market Sales update the following tables every week. Therefore, it’s important to check back for the most recent information.

Rate quotes are useful when choosing among annuities offered by different carriers.

Annuity rates are set by the insurance companies that issue the contracts. AM Best, a Nationally Recognized Statistical Rating Organization, rates insurance companies based on their ability to pay their financial obligations. The AM Best rating is not a recommendation of a particular annuity product but an assessment of the insurance company’s financial strength.

“Consumers should determine how much they would like to invest in an annuity, then shop around to various highly rated insurance companies (look for at least an A- rating) to see what their rates are, and do comparison shopping, like you would when you buy a car,” certified financial planner Rubina Hossain told Annuity.org.

Many carriers offer penalty-free withdrawal provisions that allow the annuity holder to make partial withdrawals before the surrender period ends without incurring fees. For example, some contracts allow annuity holders to withdraw up to 10 percent, starting in the first year.

Contracts with less generous withdrawal provisions may have higher rates. If you want the possibility of higher rates than fixed annuities offer and are willing to take on more risk, you could explore fixed indexed or variable annuities.

Insurance companies that sell annuities determine how they set growth rates for fixed annuities. The details are spelled out in annuity contracts.

The company will usually provide a guaranteed minimum rate for a set time period, usually three to 10 years, depending on the contract.

Rate setting can vary slightly from carrier to carrier, according to Jon Summers, senior marketing consultant with Senior Market Sales. Summers told Annuity.org that, generally speaking, the carrier takes a consumer’s premium and lumps it in with all of the premiums received.

“They then turn around and buy a basket of bonds and use that guaranteed return to either offer a rate to the consumer or buy options to provide upside potential on an index like an FIA (fixed index annuity),” Summers said. “That is why you see some modifiers like caps, spreads, participation rates, etc. This comes from the pricing options the carrier is able to offer their policy holders.”

Annuities are not investment products. They are insurance contracts with tax benefits.

Industry expert Sheryl J. Moore wrote in a January 2019 blog post that fixed annuity sales had declined over the past decade, along with rates. Gone, she said, were the double-digit rates that had been available at the turn of the century.

For this reason, she said, some advisors had shied away from recommending annuities. But she noted that in spite of their decline, the rates for annuities continued to significantly outpace the interest rates provided by banks for other accounts, including saving accounts and certificates of deposit, or CDs.

And fixed annuities aren’t vulnerable to the risks of the stock market.

Consumers who purchase annuities, she wrote, “can sleep soundly at night, not having to worry about losing principal due to market volatility. These annuity purchasers are more concerned about the return of their money, than the return on their money.”

Consumers who want their money in a safe place, she added, “can see that the potential for gains with indexed annuities is uber-competitive with other fixed money instruments today. Heck — even fixed annuities are considerably more competitive than other ‘safe money’ alternatives.”

Moore’s advice to financial service providers regarding annuities: “We all should probably keep that arrow in our quivers.”

In general, fixed annuity rates are about 35 percent higher than CD rates, Samuel Rad, a certified financial planner, told U.S. News and World Report.

Professor of retirement income Wade Pfau told Annuity.org that MYGAs are “the annuity equivalent of CDs but provide tax deferral.” Unlike certificates of deposit, annuities grow tax deferred, meaning you don’t pay taxes until the money is withdrawn.

The other main difference between MYGAs and CDs is that MYGAs, like other annuities, are not insured by the Federal Deposit Insurance Corporation, or FDIC. Rather they’re guaranteed by the life insurance companies that issue the annuities and by state guaranty associations.

An annual payout rate is the percentage of the premium an annuity holder will receive each year as income.

The insurance company can quote you a price in terms of a payout rate or a monthly income dollar amount, but they are ultimately the same thing.

For example, if an insurer offers you a 5 percent payout rate for a $100,000 annuity, you will receive $5,000 a year or $416 a month.

Note that neither of these is the same as the return on the annuity, which insurance companies rarely reference when quoting annuity prices because the return often depends on how long the annuitant lives — an unknown variable in all cases.

What you need to understand about the return on an annuity is simply this: The longer you live, the greater the return on your annuity because with every payment, the difference between what you have received in income and what you paid in principal decreases, which means the return — expressed as a
percentage — increases.

Using our example above, the return on a $100,000 annuity with a 5 percent payout rate will be 2 percent after 25 years’ worth of payments. After 30 years, the return will be 3 percent, and this will increase with every payment.