Elaine Silvestrini, Annuity.org Writer
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    Elaine Silvestrini

    Elaine Silvestrini

    Financial Writer

    Elaine Silvestrini is an advocate for financial literacy who worked for more than 25 years in journalism before joining Annuity.org as a financial writer.

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    Kim Borwick
    Kim Borwick, Financial Editor for Annuity.org

    Kim Borwick

    Financial Editor

    Kim Borwick is a writer and editor who studies financial literacy and retirement annuities. She has extensive experience with editing educational content and financial topics for Annuity.org.

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    Marguerita M. Cheng, CFP®, CRPC®, RICP®

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    Marguerita M. Cheng, CFP®, CRPC®, RICP®, is the chief executive officer at Blue Ocean Global Wealth. As a CFP Board of Standards Ambassador, Marguerita educates the public, policymakers and media about the benefits of competent and ethical financial planning. She is a past spokesperson for the AARP Financial Freedom campaign.

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  • Updated: May 12, 2023
  • 12 min read time
  • This page features 10 Cited Research Articles
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APA Silvestrini, E. (2023, May 12). Fixed Annuity. Annuity.org. Retrieved June 5, 2023, from https://www.annuity.org/annuities/types/fixed/

MLA Silvestrini, Elaine. "Fixed Annuity." Annuity.org, 12 May 2023, https://www.annuity.org/annuities/types/fixed/.

Chicago Silvestrini, Elaine. "Fixed Annuity." Annuity.org. Last modified May 12, 2023. https://www.annuity.org/annuities/types/fixed/.

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Key Takeaways

  • A fixed annuity guarantees a fixed rate of return on your contributions.
  • Fixed annuities are not indexed to stock market performance but grow at a fixed interest rate determined by the issuing insurance company.
  • Because the rate of return is constant, there is no protection from inflation. Always consider potential inflation rates when calculating contributions.
  • Fixed annuities can be structured to pay immediately or payments can be deferred until a certain time.
  • Payments can be set up to guarantee income for life.

Fixed annuities are the simplest and most straightforward type of annuities. They also provide the most predictable and reliable income stream, usually with the lowest fees.

A fixed annuity can be immediate or deferred. That is, depending on your contract, you may start receiving annuity payments within a year of purchasing your fixed annuity or you may have the payments start at a later time. Deferred annuities typically start payments at retirement.

In deciding whether a fixed annuity is right for you, you should consider how it works and how it compared with other types of annuities.

What Is a Fixed Annuity and How Does It Work?

A fixed annuity is a contract between you and an insurance provider. It can act as a safe place for cash to accumulate interest tax deferred.

You pay for a steady stream of income, and in exchange, the insurance company guarantees your principal plus a minimum interest rate.

How the money in your fixed annuity grows will be spelled out in your contract. It may be by a set dollar amount, an interest rate or by another formula specified in the contract.


Different annuity providers offer different ways to save under different rules. Providers also vary in the charges they levy and restrictions they place on annuities.

Income payments from a fixed annuity can be guaranteed for life, commonly referred to as a life annuity or single-life annuity, or for a set number of years, depending on the terms of the contract specifying the annuity payout options. Annuity contracts that pay income benefits for a set number of years are called period certain annuities or term certain annuities.

You may also elect to receive annuity income benefits as a lump sum.

Who Should Get a Fixed Annuity?

According to Annuity.org expert contributor Chip Stapleton, predictability is one of the biggest advantages of fixed annuities.

“They’re very safe products that generate a small amount of return, but it’s guaranteed,” said Stapleton, who is a FINRA Series 7 and Series 66 license holder and CFA Level II candidate. “There’s no risk involved.”

Because of this, fixed annuities are most suited to risk-averse investors who are about to retire or in the first few years of retirement. Take a look at the case study below to get an idea of how a fixed annuity might be beneficial for retirement planning.

Fixed Annuity Case Study Example

Fixed annuities can be an attractive option for conservative investors planning for retirement like Kathy because these products offer a predictable stream of income. Another way to supplement later life expenses can provide peace of mind to people like Kathy who value security and stability over chasing high stock market returns.

The predictable returns of fixed annuities make them ideal for creating a retirement budget. No matter how the stock market performs, Stapleton said, you can feel confident you’ll receive the same amount of income. This makes fixed annuities very beneficial for customers who know exactly how much money they’ll need in retirement and want a guaranteed income stream.

A fixed annuity is best suited for investors looking to preserve their principal — but who want their money to grow at a rate faster than a savings account or a CD. Stapleton said that a younger person might want a fixed annuity if they’re distrustful of the market in general and want a risk-free way to grow their money.

“But mostly, it’s going to be retirees and late retirees who are really stressing capital preservation,” said Stapleton.

Read More: What Is a Fixed Index Annuity?

Accumulation and Payout

A fixed deferred annuity consists of two distinct phases: accumulation and payout.

After you decide to buy a fixed deferred annuity, the insurance company sets an agreement to pay you a minimum rate of interest when your account is growing. This is known as the accumulation phase.

During this phase, the current interest rate is applied. This annuity rate is guaranteed for that time period.

Interest in your account grows tax deferred during the accumulation phase.

The payout phase starts when you receive regular income from your annuity. Depending on your contract, you can choose to receive payments for a set number of years or the rest of your life.

What Goes into a Fixed Annuity Rate?

Unlike variable annuities and indexed annuities, fixed annuities are not linked to stock market performance or another investment.

Instead, your money grows at an interest rate determined by the insurance company.

When an insurance company receives your money, it adds it to its general account pool of incoming premiums. The company then invests that money — usually in government securities or high-quality corporate bonds that earn a slightly higher interest rate than the insurance company pays you.

Your fixed annuity contract will include a minimum guaranteed rate. The guarantee from the annuity company is that the interest on your fixed annuity will not dip below that rate. The company also guarantees the principal investment.

Some types of fixed annuities, such as multi-year guaranteed annuities, lock in the same rate for your entire contract. Others may adjust the interest rate after a certain time.


Some fixed-annuity contracts provide a higher interest rate at the beginning, known as the bonus rate.

After the end of the set time period, another interest rate, known as the renewal rate, applies. You can ask your agent or broker for a renewal rate table to give you an idea of what to expect. However, even if the interest rate adjusts over time, it cannot fall below the guaranteed minimum rate specified in your contract.

Examples of Fixed Annuity Rates

Product Name Rate AM Best Rating
MaxRate 3 4.75% A
MaxRate 3 4.75% A
Athene MYG 4.70% A
Oak ADVantage 4.70% A+

Find The Right Annuity For You


Are Fixed Annuities Guaranteed?

Overall, annuity funds are not guaranteed by the Federal Deposit Insurance Corporation or any other federal agency. They are regulated and guaranteed by state insurance commissions.

An annuity is only as safe as the insurance company that sells it. While it is extremely unlikely an insurance company will go broke, it’s important to select an insurer with an A rating from one of the major insurance rating agencies, such as Fitch or A.M Best.

FINRA advises anyone shopping for annuities to contact their state insurance commissioner to ensure that their broker is registered and authorized to sell annuities in the state.

The regulatory nonprofit also suggests you find out whether your state has a guaranty association that will protect you if your insurer becomes insolvent.

Wendy Swanson, Retirement Income Certified Professional™, explains the benefits of a fixed annuity.

Types of Fixed Annuities

Fixed annuities can be divided into three broad types: traditional, index and multi-year guaranteed.

Traditional Fixed Fixed Index MYGA
Rate of Retrun Fixed based on contracted rate for a set period. Tied to index performance Locked in for the duration of the contract.
Risks Rates can change after a specified period.

Rates may not keep up with inflation over time.

Rates can change after a specified period.

Potential gains are limited.

Rates may not keep up with inflation over time.
Tax-Deferred? Yes Yes Yes
Beneficial For Conservative investors and those planning for retirement. Those with moderately low risk tolerance who want a stable return. Those looking for a safe and stable long-term income stream.

Traditional Fixed

Traditional fixed annuities, also known as guarantee fixed annuities, accumulate money based on a fixed interest rate set at the beginning of your contract.

Prevailing interest rates for fixed-income investments determine the initial rate. Your contract rate may be similar or higher than certificates of deposit (CDs) or government bond rates.

Insurance companies may increase the interest rate on your traditional fixed annuity contract after a specified period, such as two years. The new interest rate cannot fall below the minimum rate specified in your contract.

When shopping for a traditional fixed annuity, it’s important to find one that offers a competitive interest rate.

For example, some insurers may offer a renewal rate just slightly above the contractually guaranteed minimum. A relatively low interest rate may struggle to keep pace with inflation over time.

Make sure to carefully compare contract details before selecting a traditional fixed annuity.

Fixed Index Annuity

A fixed index annuity is linked to the performance of an underlying index, such as the S&P 500 or the Dow Jones Industrial Average.

These annuities limit both your potential losses and gains.

You won’t lose any money you put into a fixed index annuity unless you withdraw money or surrender the contract.

While you won’t lose your principal if the market downturns, you’ll also miss out on major upswings.

Fixed index annuities cap potential market highs. As a result, you won’t earn as much in strong years as you would investing directly in the stock market.

Fixed index annuities use several measures to control your gains and losses, including return caps and participation rates.

Multi-Year Guaranteed Annuity (MYGA)

A multi-year guaranteed annuity, or MYGA, is another type of fixed annuity.

MYGAs are very similar to traditional fixed annuities. The only real difference is the length of the guaranteed rate.

The interest rate for a MYGA is guaranteed for the entire contract term. There’s no risk that the insurance company will change the rate your money grows over time.

You can think of a MYGA like a fixed-rate mortgage: The rate is locked in and won’t rise or fall for any reason.

In contrast, other fixed annuities only guarantee the initial rate for a certain portion of the contract.

Imagine you purchase a 10-year traditional fixed annuity at a 4% interest rate. This rate will only be locked in for a specific time, such as the first five years. After that, the rate can increase or decrease, depending on the terms of your contract.

Meanwhile, the MYGA variety guarantees the 4% rate for the entire 10-year term.

Step 3
Step 4

How soon are you retiring?

Step 3
Step 4

What is your goal for purchasing an annuity?

Select all that apply

Pros and Cons of Fixed Annuities

With any investment, it’s wise to consider the pros and cons before deciding which choice is right for you.


  • Guaranteed minimum interest rate: A fixed annuity will never earn less than the guaranteed interest rate, regardless of the how the insurance company’s investments perform.
  • Premium protection: You cannot lose your initial investment, your premium, with a fixed annuity.
  • Income for life: If you purchase a life annuity, you can never outlive your income payments.
  • Simple: Unlike variable and indexed annuities, fixed annuities have no complicated formulas for determining the amount of money you will receive in income payments.
  • Predictable: Since everything is agreed on in the contract, you know what to expect. You don’t have to worry about whether an investment portfolio or the stock market are performing well.
  • Lowest risk: Interest credited is not dependent on the performance of investments or stocks. This is especially important for retirees, who can’t afford to lose the money they need to pay living expenses.


  • No frills: The main disadvantage is fixed annuities do not have the potential that riskier annuities have of yielding greater interest rates if an investment portfolio or stock index does well.
  • No inflation protection: Growth is fixed and may not keep up with inflation. That means their actual value may decline over time.
  • No capital gains tax rates: Money withdrawn from annuities is taxed as ordinary income. It does not get the benefit of lower capital gains rates.
  • Penalties for early withdrawals: Because annuities are designed to help people save for retirement, if you withdraw money from any annuity prior to age 59½, you will be subject to a 10% penalty.
  • Surrender charges: If you don’t like the interest rates when they are reset and want to withdraw your money early, you may incur penalties.

Fixed Annuities and CDs

A certificate of deposit, or CD, is a savings security with a fixed interest rate and a specified withdrawal date, known as a maturity date.

Like a CD, a fixed annuity pays a guaranteed interest rate for a specific period, such as three to 10 years.

Fixed annuities and CDs are similar because you’re guaranteed to receive your principal investment back after a specific time — plus a certain amount of interest.

Similarities Between Fixed Annuities and CDs

  • Both are considered low-risk investments.
  • Both offer various accumulation periods. However, CD accumulation phases tend to be shorter.
  • Both protect your principal.

But several differences exist between fixed annuities and CDs.

For example, CDs are generally purchased through a bank or credit union, while annuities are purchased from an insurance company.

Fixed annuities often feature interest rates similar or slightly higher than CDs. Fixed index annuities, which are tied to the performance of underlying stock indexes, generate higher returns than CDS.

According to Forbes, the long-term expected return on a fixed index annuity is higher than CDs.

Differences Between Fixed Annuities and CDs

  • CDs are typically purchased from banks or credit unions. Fixed annuities are purchased from an insurance company.
  • Interest earned on a fixed annuity is tax deferred while CD interest is taxed as ordinary income for the year it’s earned.
  • CDs impose high penalties if you withdraw money before the maturity date. With fixed annuities, many insurance companies allow you to withdraw up to 10% of your account’s value without a surrender charge. However, other annuity penalties may apply.

Fixed annuities can also offer more attractive tax advantages than CDs.

Unless a CD is purchased within an IRA or other retirement account, the interest it earns is subject to federal and state income tax each year.

In contrast, interest earned within a fixed annuity is tax deferred. You won’t pay tax on the interest until you withdraw it.

Comparing Fixed Annuities to Variable and Indexed Annuities

The Annuity Risk/Return Spectrum

With fixed annuities, interest rates are clearly outlined in the contract. The growth rate of variable annuities depends on the performance of an investment portfolio.

The three main differences are:

Fixed Variable
Interest is determined on the date of the contract Interest depends on performance of investments
Low risk Higher risk
Predictable, simple Complicated, more difficult to understand

Index annuities combine the features of fixed and variable annuities. Here are the main differences between fixed and indexed annuities:

Fixed Indexed
Interest is determined on the date of the contract Interest linked to performance of index, such as S&P 500. Guaranteed not to go below a certain level.
Lower fees Higher fees
Predictable, simple Complex

Read More: What Is a Variable Annuity?

Questions About Fixed Annuities

How are fixed annuity rates set?

Fixed annuity rates are set by insurance companies and take into account specific factors, including the premium amounts, current interest rates, the annuitant’s age and life expectancy and the annuitant’s sex.

Can you lose money on a fixed annuity?

You won’t lose money in a fixed annuity so long as you hold the contract to maturity and don’t withdraw early. Withdrawing too much money too soon from a fixed annuity can result in penalties and fees.

What fees and commissions are associated with fixed annuities?

Fixed annuities are the least expensive type of annuities. Carriers charge commissions and may charge administrative fees, transfer charges or underwriting fees. Be sure to read your contract carefully and ask about all fees and commissions.


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Last Modified: May 12, 2023

10 Cited Research Articles

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