Understanding Fixed Annuities
A fixed annuity is a contract between you and an insurance company. You deposit a lump sum (or series of payments), and the insurance company guarantees a fixed interest rate for a specified period — typically 3 to 10 years. At the end of the term, you can renew, take income, or move your funds.
Unlike certificates of deposit (CDs) or savings accounts, fixed annuities offer tax-deferred growth — meaning you don't pay income taxes on your interest until you withdraw it. This allows your money to compound more efficiently over time.
Fixed annuities are one of the safest places to grow retirement savings — offering guaranteed rates, principal protection, and tax-deferred growth all in one contract.
How Fixed Annuities Work
When you purchase a fixed annuity, you enter an accumulation phase during which your money grows at the guaranteed rate. After this phase, you enter the distribution phase, where you can:
- Take a lump-sum distribution
- Annuitize for guaranteed monthly income
- Add a lifetime income rider for guaranteed income you cannot outlive
- Renew for another term at the current rate
- Transfer to another annuity via a 1035 exchange (tax-free)
Key Benefits of Fixed Annuities
Frequently Asked Questions
What is a fixed annuity?
A fixed annuity is an insurance contract that guarantees a fixed interest rate on your premium for a specified period. Your principal is protected from market losses, and your interest rate is locked in at the time of purchase.
How is a fixed annuity different from a CD?
Both offer guaranteed rates, but fixed annuities typically offer higher rates, tax-deferred growth, and lifetime income options that CDs cannot provide. Fixed annuities also avoid probate through beneficiary designations.
Is my money safe in a fixed annuity?
Fixed annuities are backed by the financial strength of the issuing insurance company and are protected by state guaranty associations. Your principal and credited interest are guaranteed.
Can I access my money before the surrender period ends?
Most fixed annuities allow penalty-free withdrawals of 10% per year. Full surrender before the term ends may incur surrender charges, though many contracts waive these for nursing home or terminal illness situations.
How are fixed annuities taxed?
Fixed annuities grow tax-deferred, meaning you don't pay taxes on interest until you withdraw it. This allows your money to compound faster than a taxable account.