Annuity guide
Fixed annuities
A fixed annuity is an insurance contract that pays a guaranteed interest rate on your money for a set number of years. There is no market exposure and no cap formula to decipher — just a rate, a term, and a penalty for leaving early. That simplicity makes it the easiest annuity to compare and the hardest one to be mis-sold.
Last updated September 19, 2026 · Reviewed against our editorial methodology
What a fixed annuity is
You deposit a lump sum with a life insurance company. The insurer credits a guaranteed rate of interest, the balance grows with tax deferred, and at the end of the term you can take the money, roll it into a new contract, or convert it into income. Your principal does not fall because markets fell — the insurer absorbs that risk by investing mostly in bonds and keeping a spread.
This is the plainest product in the annuity family and the one closest to a savings instrument. If you understand a certificate of deposit, you already understand 80% of a fixed annuity. For the wider context, start with what an annuity is.
How fixed annuity rates are set
Insurers price fixed annuities off the yields available on the bonds they buy to back them, mostly investment-grade corporate debt and structured credit of a similar duration. Three practical consequences:
- Rates follow the bond market, not the stock market. When Treasury and corporate yields rise, new fixed annuity rates rise within weeks.
- Longer is not always higher. When the yield curve is flat or inverted, a three-year contract can pay as much as a ten-year one. Check every term rather than assuming.
- The highest rates usually come from smaller insurers. That is not automatically a problem, but the rate difference is compensation for taking on a less-diversified issuer, so check the rating.
See current annuity rate ranges by type and term, with the date we checked them.
MYGAs vs traditional fixed annuities
The label "fixed annuity" covers two different rate structures, and the difference matters a great deal after year one.
| MYGA (multi-year guaranteed) | Traditional / book-rate fixed | |
|---|---|---|
| Rate guarantee | One rate locked for the entire term | Rate guaranteed for one year, then reset by the insurer |
| Predictability | You can calculate the exact maturity value | Only the contractual minimum is certain |
| Main risk | Rates rise and your money is committed | Renewal rates drift down after an attractive first year |
| Best for | Comparison shopping on a single number | Rarely the better buy unless the minimum is strong |
Fixed annuity vs CD
| MYGA | Bank CD | |
|---|---|---|
| Backing | Insurer's claims-paying ability; state guaranty association backstop | FDIC insurance to $250,000 per depositor, per bank |
| Tax on interest | Deferred until withdrawal | Taxed each year as it is earned |
| Early withdrawal | Surrender charge plus possible market value adjustment; 10% tax before 59½ | Usually a few months' interest |
| Free access | Often 10% of value a year after year one | None until maturity, but penalties are mild |
| Typical yield | Often modestly higher at the same term | Competitive at short terms, especially online banks |
In practice a MYGA tends to win for money you are certain not to touch, particularly in a high tax bracket where deferral is worth something and where you expect a lower bracket in retirement. A CD wins when access matters, when the amount sits comfortably inside FDIC limits, or when you are under 59½ and may need the money.
Getting your money out
- Free withdrawal allowance. Most contracts allow 10% of the account value each year after the first without penalty. Some strict MYGAs allow interest only, or nothing.
- Surrender charge. A declining schedule — for example 9-8-7-6-5-4-3-2-1-0 over ten years. Read the actual table.
- Market value adjustment. An extra adjustment on early surrender tied to rate movements: it reduces your proceeds if rates have risen since you bought, and can increase them if rates have fallen.
- Death. Beneficiaries normally receive the full account value with no surrender charge.
- Nursing home and terminal illness waivers. Common but not universal; check whether your state's version is included.
Taxes
Interest compounds without annual tax. When you withdraw from a non-qualified fixed annuity, gains come out first and are taxed as ordinary income; withdrawals before 59½ can add a 10% additional tax. At maturity a 1035 exchange moves the money into a new annuity without triggering tax — useful if the renewal rate is poor but you do not need the cash. Inside an IRA, the IRA's rules govern and the annuity adds no extra deferral.
How safe is the guarantee?
There is no FDIC coverage. The guarantee is the insurer's, so treat the AM Best, S&P or Moody's rating as part of the product. If an insurer fails, your state guaranty association steps in up to a limit that is commonly around $250,000 of present value — different in every state. A practical rule: keep each contract within your state's limit and spread larger sums across separately rated issuers.
Who they suit
A fixed annuity fits when:
- You have safe money with a known time horizon — a maturity you can name.
- You want a rate better than cash without accepting market risk.
- You are in a high tax bracket now and expect a lower one later.
- You are building a ladder of terms to keep some money maturing every year or two.
It does not fit emergency money, anyone under 59½ who may need access, or a buyer who is really looking for lifetime income — that is a SPIA question.
How to compare contracts
- Fix the term first, then shop rate within that term.
- Confirm it is a true MYGA: one rate, whole term, in the contract.
- Read the surrender schedule and whether a market value adjustment applies.
- Check the free withdrawal allowance — 10%, interest only, or nothing.
- Check the issuer's rating and your state guaranty limit.
- Ask what happens at maturity, and put the date in your calendar with a reminder.
Frequently asked questions
- What is a fixed annuity?
- A fixed annuity is an insurance contract that pays a guaranteed rate of interest on your deposit for a stated period. Your principal is not exposed to market losses, and the rate is known before you sign. The multi-year guaranteed annuity (MYGA) locks one rate for the whole term.
- What are current fixed annuity rates?
- Fixed annuity rates track the bond market and change weekly. Through 2026 multi-year guaranteed annuities have generally been quoted in the 4%–6% range for terms of two to ten years, with the strongest rates usually from smaller, less well-known insurers. Always check a current rate sheet and the issuer's rating before deciding.
- Is a fixed annuity better than a CD?
- Neither is universally better. A MYGA often pays more than a comparable CD and defers tax until withdrawal, but it is backed by an insurer rather than FDIC insurance and penalises early withdrawal more heavily. A CD gives federal deposit insurance and simpler access, while taxing interest every year.
- Can you lose money in a fixed annuity?
- Not from market movements. You can still lose money by surrendering early and paying a surrender charge and market value adjustment, or in the rare event of insurer insolvency beyond your state guaranty association's limit. Inflation can also erode the real value of the interest you earn.
- What happens when a fixed annuity term ends?
- You normally have a short window — often 30 days — to withdraw the money, roll it into a new contract via a 1035 exchange, or annuitise. If you do nothing, many contracts automatically renew at the insurer's current renewal rate, which is often far below what you could get elsewhere. Diary the maturity date.
- What is the minimum deposit for a fixed annuity?
- Most fixed annuities start at $5,000 to $25,000. Some insurers offer a rate bonus at higher bands, commonly at $100,000, so it is worth asking whether crossing a threshold changes the quoted rate.
Sources
- FINRA — Fixed annuities and surrender charge disclosure guidance.
- U.S. Securities and Exchange Commission, Investor.gov — Annuities.
- Internal Revenue Service — Publication 575; Section 1035 exchanges.
- National Organization of Life & Health Insurance Guaranty Associations — state coverage limits.
- Insurer rate sheets and AM Best financial strength ratings, checked at the date shown above.