Fixed annuities are insurance contracts that offer the buyer a set rate of return on their contributions for a period of time. This investment benefits those who want premium protection, income certainty, and low risk. This guide will review the fundamentals of fixed annuities and what you need to know before investing in one. We’ll also compare today’s guaranteed fixed annuity rates so you can start putting your retirement money to work.
As of April 1, 2023, American National offers a 5.45% fixed annuity rate for a 7-year term, one of the best currently available deals with an “A” rated insurance company. Fixed annuities provide customers with a guaranteed interest rate over a set period, similar to how Certificates of Deposit operate.
- Today’s Best Fixed Annuity Rates
- What is a Fixed Annuity?
- How Do Fixed Annuities Work?
- Types Of Fixed Annuities
- What Do My Beneficiaries Receive?
- What Is Guaranteed?
- Benefits of Fixed Annuities
- Top 12 Reasons To Buy Fixed Annuities
- How are Fixed Annuities Taxed?
- Average Fixed Annuity Rates
- Most Popular Fixed Annuity Rates
- Best 2-Year Fixed Annuity Rates
- Best 3-Year Fixed Annuity Rates
- Best 4-Year Fixed Annuity Rates
- Best 5-Year Fixed Annuity Rates
- Current Fixed Annuity Rates
- Fixed Annuity Calculator
- Next Steps
- Frequently Asked Questions
- Request A Quote
Today’s Best Fixed Annuity Rates
- 2-Year: 4.60%
- 3-Year: 5.63%
- 4-Year: 5.10%
- 5-Year: 5.45%
- 6-Year: 5.43%
- 7-Year: 5.46%
- 8-Year: 5.45%
- 9-Year: 5.45%
- 10-Year: 5.45%
- 20-Year: 4.75%
What is a Fixed Annuity?
A fixed annuity is an insurance contract that pays you a specific, guaranteed interest rate on the money you put in for a specified period. The interest rate is usually higher than what you would get from a savings account like a CD. Fixed annuities are often used for retirement planning.
Unlike a variable annuity, you can not lose your money to stock or bond market volatility because fixed annuities are insurance, not investment products.
How Do Fixed Annuities Work?
Conservative investors can buy fixed annuities with a lump sum or a series of payments over time. The insurance company guarantees the account will earn a specific interest rate for a specified period. This period is known as the accumulation phase.
When the initial annuity rate period ends, the insurance company will set a new interest rate for the next rate period. This new rate is called a renewal rate. The latest renewed rate can increase, decrease, or stay the same as the initial rate.
Suppose the annuity owner chooses to start getting regular payments. In that case, the insurance company calculates how much money is in the account, the owner’s age, and how long the payments will continue. Collecting these payments begins the payout phase. The payout phase can last for several years or until the owner dies.
The account holder does not have to pay taxes on the money in the account during the accumulation phase. However, when annuity owners withdraw or annuitize the contract, they must pay ordinary taxes based on how much money was paid in premiums and how much it has grown.
Types Of Fixed Annuities
Traditional fixed annuities
Traditional fixed annuities are the most basic type of fixed annuity available. They are designed to provide a fixed rate of return for a specific period, typically one to ten years. The rate of return is determined by the insurance company and is based on the prevailing interest rates. Traditional fixed annuities are a good option for individuals looking for a guaranteed rate of return and who want to avoid the risks associated with other types of investment vehicles.
Multi-year guaranteed annuities
Multi-year guaranteed annuities (MYGAs) are traditional fixed annuity that provides a guaranteed rate of return for a fixed term, typically two to ten years. The rate of return is locked in for the annuity term, making it an attractive option for individuals looking for a guaranteed return on their investment.
Fixed indexed annuities
Fixed-indexed annuities (FIAs) are a type of fixed annuity that allows investors to participate in the growth of a stock market index while also providing downside protection. FIAs are designed to provide a fixed rate of return, but the rate of return is tied to the performance of a specific stock market index, such as the S&P 500. If the index performs well, the investor receives a higher rate of return, up to a predetermined cap or participation rate. Conversely, the investor is protected from market losses if the index performs poorly.
What Do My Beneficiaries Receive?
Unlike a life annuity, fixed deferred annuities offer beneficiaries a simple standard death benefit: the annuity’s accumulation value or the minimum guaranteed surrender value, whichever is greater.
Helpful tip: Life insurance might be a good option if you want to leave money to your beneficiaries. You don’t have to take a medical examination in some cases. Instead, get a life insurance quote to see how much it would cost you monthly. Coverage starts at $9.37 per month.
What Is Guaranteed?
Deferred fixed annuities provide the most significant level of protection. All of the following are guaranteed:
- The initial investment and any accrued interest are fully protected against loss, regardless of the insurer’s general account assets’ performance.
- At the current interest rate established by the insurer, any outstanding amounts are credited to the cash value.
- Credited interest will never be less than the guaranteed minimum rate stipulated in the annuity contract.
Benefits of Fixed Annuities
People who own these annuity products can benefit in a lot of ways.
- Guaranteed Returns: The rates on fixed annuities come from the yield that the life insurance company earns from its investments. Despite the market performance, the life insurance company is responsible for paying whatever rate it has promised in the annuity contract. This differs from variable annuities, where the annuity owner chooses the investments and assumes much of the investment risk.
- Protection From Declining Interest Rates: Once the initial guarantee period in the contract expires, the insurer can change the rate. The rate can go up or down, depending on a stated formula or how much the insurer earns from its investment portfolio. Most fixed deferred contracts include a minimum rate guarantee, protecting you from declining interest rates.
- The account grows tax-deferred: A fixed deferred annuity is a retirement plan where you don’t have to pay ordinary taxes on the money you make immediately. Tax deferral can be a good idea because, over time, that money compounds, and you’ll be able to use it later without paying as much in taxes. The same applies to retirement savings plans like IRAs and 401(k)s.
- Guaranteed income payments: You can convert fixed-period annuity contracts into an immediate fixed annuity (SPIA) at any time and receive payments at no additional cost. In addition, payout options will give you a guaranteed payment for a fixed period or the rest of your life.
- Safety of principal: The life insurance company is responsible for the security of the principal investment in the deferred annuity and for fulfilling any promises made in the contract. Your money will be safe if something happens to the life insurance company. However, unlike most bank accounts, fixed and variable annuities are not federally insured but are backed by the claims-paying ability of the issuing insurance company. This is why it is essential to only do business with life insurance companies that earn high grades for financial strength from the major independent rating agencies.
| Variable Annuity | Fixed Index Annuity | Fixed Annuity | Immediate Annuity | Deferred Income Annuity | Buffer Annuity | |
|---|---|---|---|---|---|---|
| Principal Protection | No | Yes | Yes | Yes | Yes | No |
| Access To Principal | Yes | Yes | Yes | No | No | Yes |
| Control Over Money | Yes | Yes | Yes | No | No | Yes |
| Tax-Deferred Growth | Yes | Yes | Yes | No | No | Yes |
| Guaranteed Growth | No | Yes | Yes | No | No | No |
| Guaranteed Income | Yes | Yes | Yes | Yes | Yes | Yes |
| Inflation Protection | Yes | Yes | No | Yes | Yes | Yes |
| Death Benefit | Yes | Yes | Yes | Yes/No | Yes/No | Yes |
| Long-Term Care Help | Yes | Yes | Yes | No | No | Yes |
Top 12 Reasons To Buy Fixed Annuities
- Guaranteed interest earning for a set period without market risk.
- Tax-deferral on interest.
- Protection from market volatility.
- Generates a guaranteed retirement income for life, helping your finances.
- Deferred fixed annuity rates offer a higher rate of return than a bank certificate of deposit.
- Offer a higher rate of return than a high-yield savings account.
- The insurance product offers access to your money without penalties.
- Systematic withdrawals of interest.
- Withdrawal charge waivers for long-term care expenses.
- This financial product offers a death benefit.
- No upfront charges or fees.
- Laddered annuities can help with maintaining the cost of living adjustments.
- Annuity payments are also tax-deferred, which allows better compounding interest than a standard CD.
How are Fixed Annuities Taxed?
Current federal law gives annuities special treatment. Income tax on fixed annuities and MYGAs is deferred, so you aren’t taxed on any interest or investment returns while your money grows in the annuity contract. Tax-deferred isn’t the same as tax-free. You’ll pay ordinary tax when you withdraw, receive an income stream, or receive each annuity payment. When you die, your beneficiaries typically owe regular income taxes on any death benefits they receive from the guaranteed annuity. You may also pay a 10% tax penalty if you withdraw any annuity payments before age 59½.
Qualified Fixed Annuities
Qualified fixed annuities have a tax status for IRAs, 401k, SEP, and other employer-sponsored savings plans. Qualified plans are pre-taxed funds, so when you withdraw funds from the account, 100% of your income will be subject to ordinary income taxes.
The exception with Qualified Fixed Rate Annuity contracts is the Roth IRA. Therefore, all funds withdrawn from these contracts will be tax-free.
Non-Qualified Fixed Annuities
Non-qualified fixed annuities are funded with “after-taxed” money, and annuity owners are subject to paying regular income taxes on any interest credits that have yet to be taxed.
Average Fixed Annuity Rates
What is a reasonable annuity rate? Current average annuity rates fixed can expect between 3.60% and 5.25% ranging between 2 years and ten years in length. Use our fixed annuity calculator to solve your guaranteed rate of return.
Most Popular Fixed Annuity Rates
| Annuity Company | A.M. Best Rating | Term | Liquidity | Rate |
|---|---|---|---|---|
| Clear Spring | A- | 2 Years | Yes | 4.60% |
| Ibexis | A- | 3 Years | Yes | 5.00% |
| Oceanview | A- | 4 Years | Yes | 5.10% |
| Americo | A | 5 Years | Yes | 5.40% |
| American National | A | 6 Years | Yes | 5.45% |
| American National | A | 7 Years | Yes | 5.45% |
| American National | A | 8 Years | Yes | 5.45% |
| American National | A | 9 Years | Yes | 5.45% |
| American National | A | 10 Years | Yes | 5.45% |
Best 2-Year Fixed Annuity Rates
| Insurance Company | A.M. Best Rating | Term | Liquidity | Rate |
|---|---|---|---|---|
| Clear Spring | A- | 2 Years | Yes | 4.60% |
| Oceanview | A- | 2 Years | Yes | 4.55% |
Best 3-Year Fixed Annuity Rates
| Insurance Company | A.M. Best Rating | Term | Liquidity | Rate |
|---|---|---|---|---|
| Oceanview | A- | 3 Years | Yes | 5.00% |
| Ibexis | A- | 3 Years | Yes | 5.00% |
Best 4-Year Fixed Annuity Rates
| Insurance Company | A.M. Best Rating | Term | Liquidity | Rate |
|---|---|---|---|---|
| Oceanview | A- | 4 Years | Yes | 5.10% |
| Americo | A | 4 Years | Yes | 5.05% |
Best 5-Year Fixed Annuity Rates
| Insurance Company | A.M. Best Rating | Term | Liquidity | Rate |
|---|---|---|---|---|
| Americo | A | 5 Years | Yes | 5.40% |
| Sagicor | A- | 5 Years | Yes | 5.30% |
Current Fixed Annuity Rates
At The Annuity Expert, we are licensed financial professionals who can help you secure a fixed annuity. We understand that retirement planning can be complex, and we are here to help you every step of the way. We offer free quotes and custom solutions tailored to your unique needs. Contact us today to learn more about how we can help you reach your retirement goals.
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Next Steps
There are many types of annuities and retirement plans. However, if you seek a safe and stable investment option, fixed annuities may be the right choice. These insurance contracts offer high-interest rates that beat most CD options and protection from stock market fluctuations. Your money will also grow tax-deferred, meaning you won’t have to pay the tax on your earnings until you withdraw them and start receiving income. And if something happens to you before your contract matures, your beneficiaries will receive the death benefit in your agreement. Request a quote from our fixed annuity calculator today to see how much interest you could earn with fixed annuities!
Frequently Asked Questions
What are current fixed annuity rates?
The best MYGA and fixed annuity rates are 5.45 percent for a 7-year surrender period, 5.45 percent for a ten-year surrender period, 5.45 percent for a five-year surrender period, and 5.65 percent for a three-year surrender charge period.
What is the highest fixed annuity rate?
Aspida offers a competitive fixed annuity rate of 5.60% for seven years as of March 14, 2023. Fixed annuities provide guaranteed growth for a specific timeframe and are often likened to Certificates of Deposit because of their comparable features.
What are fixed annuities paying?
Fixed annuity contracts provide guaranteed retirement income payments. With a fixed annuity contract, you make one or several payments to the annuity provider, which promises to pay you a fixed return on your contributions, no matter how markets perform.
Do fixed annuities have fees?
Fixed annuities do not charge annual fees in the traditional sense but reduce the guaranteed interest rate for a feature or benefit. Surrender charges may be imposed if annuity owners prematurely cancel their retirement plans. Additional tax penalties will incur if owners withdraw money early (before age 59.5).
Are annuities FDIC insured?
Annuities are not FDIC insured or any other federal agency. Instead, they are guaranteed by the issuing insurance company. The state’s insurance commissioners regulate fixed annuities. The State Guaranty Association (SGA) insures insurance companies. The insurance companies are also regulated by the National Association of Insurance Commissioners (NAIC). FINRA, a financial industry regulatory authority, regulates variable annuities.
Are there any 1-year fixed annuity rates?
Clear Spring, an “A-” rated insurance company, has 1-year fixed annuity rates. However, there are several 2-year fixed annuity rates available.
What is the downside of a fixed annuity?
Fixed annuities have limited flexibility and growth potential and may incur surrender charges and tax implications, making them unsuitable for some investors.
Are fixed annuities a good investment?
Whether fixed annuities are a good investment depends on an individual’s financial goals, objectives, and risk tolerance. While they offer a steady income stream and guaranteed interest rates, they also have downsides, such as a lack of flexibility, limited growth potential, surrender charges, and tax implications.
How does a fixed annuity work?
A fixed annuity is an investment product offered by insurance companies that guarantees a fixed rate of return over a specified period. The annuitant makes a lump sum payment or a series of payments to the insurance company, which then invests the money and provides a steady stream of income to the annuitant for a specified period. At the end of the contract period, the annuitant receives the initial investment plus interest. The income generated from a fixed annuity is subject to income tax.
How much does a $100,000 fixed annuity pay per month?
With Corebridge Financial’s Fixed Annuity, you can enjoy a lifetime of guaranteed income from $500 to as much as $1,485 monthly.
What are the pros and cons of fixed annuities?
Fixed annuities offer a guaranteed income and safety but lack flexibility and growth potential. They also have surrender charges and tax implications.
What is a fixed index annuity?
A fixed index annuity is a type of fixed annuity that offers a guaranteed minimum interest rate, with the potential to earn additional interest based on the performance of a stock market index. In addition, the annuitant’s principal is protected from market losses and receives a portion of any gains in the market index up to a specified cap.
What are fixed annuity characteristics?
Fixed annuities have a guaranteed rate of return, a fixed term, no market risk, tax-deferred growth, and limited liquidity. On the other hand, the downsides are surrender charges and no investment diversification.
What is a 3-year fixed annuity?
A 3-year fixed annuity is a type of fixed annuity that offers a guaranteed rate of return over a term of three years. The annuitant makes a lump-sum payment to an insurance company, which then invests the money and provides the annuitant with a guaranteed income stream for three years. At the end of the three years, the annuitant receives the initial investment plus interest. Fixed annuities, including 3-year fixed annuities, provide a relatively safe investment option for those looking for a stable income stream.
What is a fixed deferred annuity?
A fixed deferred annuity is a type of annuity that offers a fixed rate of return over a specified period but with a deferred payout. The annuitant makes a lump-sum payment or a series of payments to the insurance company, which then invests the money and provides a guaranteed rate of return. The payout phase of the annuity is deferred until a later date, which is determined when the annuity is purchased. During the deferral period, the annuitant’s money grows tax-deferred.
Can you lose money in a fixed annuity?
Losing money in a fixed annuity is unlikely due to guaranteed rates of return and insurance company backing. However, penalties for early withdrawal and inflation-reducing purchasing power are potential risks.
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