What Is a Fixed Annuity?
A fixed annuity is the simplest category of annuity. The insurance carrier agrees to pay a stated interest rate on your premium for a set period. Unlike variable or indexed annuities, a fixed annuity's credited rate does not depend on market performance. You know exactly what you will earn.
Types of Fixed Annuities
Multi-year guaranteed annuity (MYGA): A fixed annuity that locks in a specific interest rate for a defined term, often 3, 5, or 7 years. Comparable to a bank CD in structure, with the added benefit of tax deferral.
Traditional fixed annuity: Offers a declared rate that may be adjusted annually after an initial guarantee period. The carrier has more flexibility to change the rate, which introduces some uncertainty after the first year.
Fixed Annuities vs. Fixed Indexed Annuities
Both protect principal, but they grow differently. A fixed annuity grows at a declared rate regardless of the market. A fixed indexed annuity (FIA) has the potential to earn more in years when the linked index performs well, but it also earns zero (not negative) in down years. FIAs generally offer more upside in exchange for some complexity; fixed annuities offer pure simplicity.
Who Uses Fixed Annuities?
Fixed annuities appeal to savers who prioritize certainty over growth potential, particularly those approaching retirement or those who have already retired and want a predictable return on a portion of their assets without stock market exposure.