Fixed Index Annuities
Fixed index annuities or FIAs are a type of annuity contract that provide investors with the potential for growth, while offering 100% downside protection, and the ability to turn retirement assets into lifetime income through annuitization.
The interest credited to FIAs is linked to the performance of an external index, such as the S&P 500®, but your principal is protected from losses in the index. You also have the ability to allocate some or all of your money to a fixed account that earns a guaranteed interest rate.
How do FIAs work?
FIAs are driven by the crediting strategy you choose. For most FIAs, this strategy is made up of three parts.
Investment and Term
Once you've determined your investment amount, you will need to select the length of your contract. Every FIA is different, and each carrier will offer different term options. The most common term options are 3, 5, 7 or 10 years.
Index
The interest credited to FIAs is linked to the performance of an external index, such as the S&P 500®. While your investment amount is not invested directly in the index, you have the potential to earn index-linked interest if the index has positive performance during the index term. If the index has a negative performance during the index term, you will be credited with zero index-linked interest.
You also have the ability to allocate some or all of your money to a fixed account that earns a guaranteed interest rate.
Crediting Options
There are different crediting options that are used to calculate the amount of index-linked interest credited to your contract based on the performance of an external index like the S&P 500®.
- Point-to-point, which can credit your interest based on a or .
- Performance-triggered index, which credits your interest based on a .
You may choose to allocate your entire purchase payment to one interest-crediting option or a combination of options. The amount of money you allocate to each option is up to you.
The table below summarizes crediting options and how interest is earned:
Indices
How interest is credited
When interest is credited
Terms
Index-Linked Options
You may choose to allocate your entire purchase payment to one interest-crediting option or a combination of options. The amount of money you allocate to each option is up to you.
An external index like the S&P 500®
Point to Point Option (subject to a cap rate or participation rate)
Performance-Triggered Index Option
If a 1-year option, it's credited annually at the end of the one-year term
The cap rate, participation rate, and/or performance-triggered index rate is set at contract issue. The most common term options are 3, 5, 7 or 10 years. At the end of the contract year, you have the flexibility to reallocate your contract value however you choose or keep the same allocations.
Fixed Account Option
You also have the ability to allocate some or all of your money to a fixed account that earns a guaranteed interest rate.
N/A
Fixed Interest Rate
Daily
The fixed interest rate is set at contract issue and guaranteed for the term length. The most common term options are 3, 5, 7 or 10 years.
Indices
How interest is credited
When interest is credited
Index-Linked Options
You may choose to allocate your entire purchase payment to one interest-crediting option or a combination of options. The amount of money you allocate to each option is up to you.
An external index like the S&P 500®
Point to Point Option (subject to a cap rate or participation rate)
If a 1-year option, it's credited annually at the end of the one-year term
Performance-Triggered Index Option
If a 1-year option, it's credited annually at the end of the one-year term
Terms
The cap rate, participation rate, and/or performance-triggered index rate is set at contract issue. The most common term options are 3, 5, 7 or 10 years. At the end of the contract year, you have the flexibility to reallocate your contract value however you choose or keep the same allocations.
Fixed Account Option
You also have the ability to allocate some or all of your money to a fixed account that earns a guaranteed interest rate.
N/A
Fixed Interest Rate
Daily
Terms
The fixed interest rate is set at contract issue and guaranteed for the term length. The most common term options are 3, 5, 7 or 10 years.
Index-Linked Options
You may choose to allocate your entire purchase payment to one interest-crediting option or a combination of options. The amount of money you allocate to each option is up to you.
Indices
An external index like the S&P 500®
How interest is credited
Point to Point Option (subject to a cap rate or participation rate)
Performance-Triggered Index Option
When interest is credited
If a 1-year option, it's credited annually at the end of the one-year term
Terms
The cap rate, participation rate, and/or performance-triggered index rate is set at contract issue. The most common term options are 3, 5, 7 or 10 years. At the end of the contract year, you have the flexibility to reallocate your contract value however you choose or keep the same allocations.
Fixed Account Option
You also have the ability to allocate some or all of your money to a fixed account that earns a guaranteed interest rate.
Indices
Daily
How interest is credited
Fixed Interest Rate
When interest is credited
Daily
Terms
The fixed interest rate is set at contract issue and guaranteed for the term length. The most common term options are 3, 5, 7 or 10 years.
What are the benefits?
A fixed indexed annuity can be a smart choice as part of your overall financial strategy for several reasons:
You want the opportunity for growth potential, but also protection from loss during volatile markets.
You can earn index-linked interest based on the performance of your selected indices without the risk of actually being invested in the stock market.
Your money grows tax-deferred, so you don't pay taxes until you withdraw it.1
You can pass assets to beneficiaries and avoid costly probate. 2
1 Tax deferral is automatically provided by tax-qualified retirement plans, including IRAs. There is no additional tax-deferral benefit provided when an annuity contract is used to fund a tax-qualified retirement plan or an IRA. Investors should only consider buying this contract in conjunction with a tax-qualified retirement plan or an IRA for the annuity's insurance features such as lifetime income payments.
2 This is not a unique feature of fixed index annuities but all annuities.
What should you consider?
Fixed indexed annuities can seem complicated. The following tables can show you what your potential earnings might look like with hypothetical rates and index performance figures.
Cap Rates
Cap rate is a term used to describe the maximum rate of return that can be credited. If the return is zero or negative, interest will not be credited, but you will not have any loss of contract value.
For example, if the cap rate is set at 7% and the index increases by 10% during the one-year period, the annuity will earn a return of 7%.
Cap Rate | Index Performance | Earnings |
|---|---|---|
7% | +10% | 7% |
7% | +7% | 7% |
7% | +1% | 1% |
7% | -3% | 0% |
Participation Rates
The participation rate is the percentage of the index gain that is credited to the annuity's account value.
For example, if the participation rate is set at 70% and the index increases by 10% during the one-year period, the annuity will earn a return of 7% (70% of 10%).
Participation Rate | Index Performance | Earnings |
|---|---|---|
70% | +10% | 7% |
70% | +5% | 3.5% |
70% | -3% | 0% |
Performance-Triggered Index
The performance-triggered index method credits your interest based on the defined rate, if the index is flat or positive at the end of the contract year.
For example, if the rate is defined at 7% and the index increases by 10% during the one-year period, the annuity will earn a return of 7%.
Defined Rate | Index Performance | Earnings |
|---|---|---|
7% | +10% | 7% |
7% | +7% | 7% |
7% | +1% | 7% |
7% | -3% | 0% |
Why we've selected these FIAs for our marketplace
Our goal is to make it easy for customers to compare a curated list of FIAs in one place online. Here's what we've taken into consideration in choosing these FIAs:
Financial Stability: We only offer insurance carriers with an A.M. Best rating of B++ or better for our FIAs. This rating indicates the credibility and ability an insurance company has to repay any claims to customers.
Easy-to-Understand Options: We've chosen simple and easy-to-understand options that make it less challenging for investors to choose the right product that meets their investment goals.
Ease of Doing Business: Ultimately our goal is to set you up to invest and manage your own investments online; however, our team is here to provide assistance with your inquiries, manage paperwork, and support you in your decision-making.
No Fees: These FIAs do not charge mandatory annual fees, which means that investors can keep more of their returns. Some products have the opportunity to add additional benefits for a fee.
Renewal Rates: These FIAs have demonstrated competitive cap/participation renewal rates in the past, meaning investors can expect a strong value proposition for their annuities over time.
What are today's best fixed index annuity cap rates by term and rating?
Best Fixed Annuity Rates by Term
3 Years
INSURER
MassMutual Ascend
Rating
A++
Rate (APY)
8.50%
5 Years
INSURER
Guaranty Income Life
Rating
A-
Rate (APY)
11.65%
INSURER
Oceanview
Rating
A
Rate (APY)
14.00%
7 Years
INSURER
Oceanview
Rating
A
Rate (APY)
14.00%
INSURER
Oceanview
Rating
A
Rate (APY)
15.00%
10 Years
INSURER
Oceanview
Rating
A
Rate (APY)
15.00%
Best Fixed Annuity Rates by Rating
INSURER
Reliance Standard
Term
7 Years
Rate (APY)
11.00%
A++
INSURER
Reliance Standard
Term
5 Years
Rate (APY)
11.00%
A+
INSURER
North American
Term
10 Years
Rate (APY)
8.50%
INSURER
Oceanview
Term
10 Years
Rate (APY)
15.00%
A
INSURER
Oceanview
Term
10 Years
Rate (APY)
15.00%
A-
INSURER
Guaranty Income Life
Term
10 Years
Rate (APY)
12.00%
INSURER
Farmers
Term
10 Years
Rate (APY)
11.00%
INSURER
Farmers
Term
7 Years
Rate (APY)
11.00%
B++
INSURER
Farmers
Term
5 Years
Rate (APY)
11.00%
These rates are for the S&P 500®. Not all insurers and rates are available in all states.
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Compare our curated list of FIAs.