Fixed Annuities

Fixed Annuities in Plain English

Fixed annuities offer you a safe, guaranteed and tax-deferred way to grow your retirement savings

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What Is a Fixed Annuity?

A fixed annuity is a tax-deferred retirement savings vehicle that provides fixed asset accumulation. With a fixed annuity, you can invest your savings over a specified time horizon (typically 1 to 10 years), earning a fixed return – much like a CD. The interest earned in your fixed annuity is not taxed until withdrawn, and your principal is guaranteed.

Tip: You might hear this product referred to using a few different names:

  • Fixed annuity
  • Fixed deferred annuity (FDA)
  • Fixed rate annuity
  • Multi-year guaranteed annuity (MYGA)
  • Single premium deferred annuity (SPDA)

Because annuity terminology – and the fact that a fixed annuity is an annuity in the first place – is confusing, let’s break it down:

A fixed annuity is… an annuity.

An annuity is an insurance vehicle where a lump-sum amount is exchanged for a stream of payments going forward. What makes a fixed annuity an annuity is that it has the option to annuitize at the end of the contract term. You can also choose to leave your money invested at a renewable rate, withdraw all or a portion, or roll it over into a new fixed annuity. The distinction of being an annuity gives it tax-deferred status.

More specifically, a fixed annuity is… an accumulation annuity.

An accumulation annuity is bought for the growth potential of the money invested, and not as much for the ability to turn that money into income (as is the case with an income annuity). During the accumulation, or deferral, period your money will be invested with an insurance company and grow on a tax-deferred basis. You will have some access to your money – typically the interest or 10% of your balance – while it’s invested. Accumulation annuities grow either at a fixed rate (like fixed annuities) or grow based on market performance (as with variable and indexed annuities).

And finally, a fixed annuity is… a multi-year guaranteed accumulation annuity.

Fixed annuities earn a fixed rate over a multi-year time horizon. The interest rate will be specified upfront and will vary based on the amount you’re investing, your investment horizon, the credit rating of the insurer, and market conditions at the time of purchase. At the end of the guarantee period, the rate may change.

In summary, a fixed annuity is an annuity that offers low-risk tax-deferred accumulation at a fixed rate.

Fixed Annuities vs. CDs

Fixed annuities operate very similarly to CDs. Both vehicles offer a safe way to save money, crediting higher interest rates than available through savings accounts by requiring you to lock your money away for a period of time. However, fixed annuities have longer-term investment horizons and tax-preferential treatment. As CDs are the more well known of the two products, it can be easier to understand fixed annuities using a side-by-side comparison:

Fixed Annuity


Sold By

Insurance Companies



$2,500 – $3,000,000

Virtually any denomination


1 year – 10 years

3 months – 5 years

Interest Rates

Vary by term and size but typically higher than CD rates

Vary by term and size but typically lower than fixed annuity rates


Taxes on interest gains deferred until money is withdrawn

Interest taxable annually as earned


Typically, a portion of the account balance is available for withdrawal annually

Generally no (free) access to account balance is available

Withdrawal Provisions

Can generally withdraw accumulated interest or 10-15% of cash value for free if aged-59½ or older

All withdrawals are charged, typically equal to a portion of the interest you’ve earned

Financial Protection

Backed primarily by the issuing insurance company

CDs are insured by the FDIC


Asset passed directly to beneficiary without going through probate process

Probate process required to pass asset to heirs

Does not cover all products or all companies. Specific information available by product upon request. Updated as of December 16 2021.

Another key difference is that fixed annuities can be annuitized at the end of the contract term. Annuitization is the process of turning a lump-sum of savings into a stream of steady income, guaranteed to last a number of years or for life. This feature is what makes annuities good for retirement income and qualifies them for tax-preferential treatment. 

Who Is a Fixed Annuity Right for?

Just like with any product, fixed annuities might make sense for you, or they might not. We’ve compiled a checklist to help you figure out whether a fixed annuity fits your investment needs.

Consider buying a fixed annuity if…

  • You have money to invest for at least 3 years
  • The money you’re investing is earmarked for retirement or to be passed on to heirs
  • You’ve already maxed out your IRA or 401(k) contributions
  • You want greater certainty and principal protection
  • You have other assets in the market exposed to higher expected returns
  • You want to preserve some liquidity

A fixed annuity is probably not the right product for you if…

  • You need to access your money during the surrender sales charge period or before age 59½
  • You aren’t maxing out IRA or 401(k) contributions
  • You’re interested in investments and willing to risk principal

Fixed Annuity Pros & Cons

Fixed annuities are a useful tool for retirement savings. They provide a safe, tax-advantaged way to earn a good return on savings needed in the near future.

Guaranteed, Strong Return

The money you invest in a fixed annuity will accumulate at a fixed rate, which is specified upfront and guaranteed for the entire contract. Fixed annuities generally offer higher rates than CDs with the same contract length.

Tax-Deferred Growth

From the government’s perspective, an annuity is a retirement savings vehicle. As such, it receives similar tax treatment as IRAs: no taxes are paid until distributions are made. For a fixed annuity, this means that interest will accumulate and compound without incurring annual taxes, as is the case for a CD.

Principal Protection

Unlike with most other investments, there is no market risk associated with a fixed annuity. Your principal is protected and guaranteed to accumulate at a fixed rate, making fixed annuities a good place to park retirement money you don’t want to risk losing.

Some Liquidity

Fixed annuities provide some liquidity, typically making interest earned or 10-15% of the contract’s cash value available penalty-free annually if you’re over 59½.

Simple & Easy to Understand

There are a lot of complex products, but a fixed annuity is one of the simple ones. Assuming you leave your money in the fixed annuity until its guaranteed rate terms ends, all you need to know is (1) how long until your money is available and (2) what your return will be over that period of time. There are no hidden fees that you need to worry about.

Despite these benefits, fixed annuities are not good for everyone or for all situations. Here are some of the drawbacks:

Penalties for Withdrawals Under Age 59½

Fixed annuities are really meant to be used for retirement savings. The IRS issues a 10% penalty on gains withdrawn from a fixed annuity for account holders under age 59½.

Fixed Annuity Rates

Fixed annuity interest rates will vary over time as market conditions change, being driven most notably by longer-term Treasury and investment grade corporate bond yields. In addition, the size of your investment, length of time you’re willing to lock away your money, and the credit rating of the carrier will impact the rate.

To see the current fixed annuity rates and the insurers behind them, visit the Fixed Annuity Marketplace:

Understanding how the investment amount, investment term, and carrier’s credit rating drive interest rates will help you to select the fixed annuity that best suits your needs. Expect to have to think about the following:

Investment Amount: The higher the investment amount, the higher the rate. Larger fixed annuity investments will have access to higher interest rates. A portion of the insurance company’s expenses are fixed per contract such that incremental premium can essentially be invested without costing more. Said another way, there is a bonus for larger deposits.

Investment Term: The longer the contract term, the higher the rate. When an insurance company invests your funds, a longer time horizon gives them more flexibility for investing your money and weathering any market fluctuations. As is the case for bonds and other fixed income instruments, investors have the right to demand higher returns the longer their money is locked away. (Note that there may be some exceptions to this rule based on the availability of some intermediate terms, like 6, 8, and 9 years.)

Insurer’s Credit Rating: The higher the insurer’s credit rating, the lower the rate, but the safer the investment. Given that fixed annuities are not backed by the FDIC.

The Financial Value of a Fixed Annuity

A fixed annuity is a CD-like investment which credits a fixed interest rate over a specified period of time. On a pre-tax basis, the value of the fixed annuity is understood simply by its interest rate, or the rate at which you’ll earn a return. But, fixed annuities are even more valuable on an after-tax basis. Unlike CDs, interest earned on a fixed annuity is not taxed until money is withdrawn from the contract. This not only means lower taxable income for you during the accumulation period, but also additional compounded interest.

To illustrate the value of a fixed annuity, let’s take Kelli, a 55-year-old starting to prepare for retirement, as an example. Kelli has $800,000 of post-tax savings that she’s set aside for retirement. It’s currently invested in the stock market, but she’d like to move $100,000 to something safer. She’s considering a 5-year CD or fixed annuity.

During her search, Kelli finds a 5-year fixed annuity returning 4.00%, significantly more than the 3.37% her bank is offering for a 5-year CD. This chart compares the growth of the two products and illustrates the power of the fixed annuity’s tax-deferred growth.

fixed annuities graph
Charts show cumulative interest and taxes. Chart shows assumed rates of return based on a $100,000 investment, and is not indicative of any particular annuity’s return.

The fixed annuity will produce an extra $4,000 pre-tax ($2,900 post-tax) over the 5-year period. Considering Kelli’s age, timeline, and her plans to use the money for retirement, the fixed annuity is the more sensible investment for her. Plus, if she decides to roll the money over into another annuity in 5 years, she’ll be able to extend the tax-deferral.

Fixed Annuity Taxation

In our discussion of fixed annuities thus far, we’ve assumed that the purchase was made with after-tax personal savings. However, it’s also possible to buy a fixed annuity with qualified funds, such as within an IRA. In this case, the fixed annuity doesn’t provide any additional tax benefits beyond what the IRA offers, which is tax-deferral of gains until money is withdrawn.

Continuing with the original assumption that the fixed annuity is being purchased with non-qualified funds, let’s dig deeper into the tax treatment at each phase of the contract:

  • There are no taxes due during the contract term. Your money isn’t subject to taxation while it’s growing. Not paying taxes means that you’re able to keep more money invested and earning interest. And, this benefit continues as long as you keep your money in the contract, which can be beyond the end of the initial guaranteed interest rate term.
  • Instead, you pay taxes once money is withdrawn whether during, at the end of, or after the initial interest rate term of the contract. Assuming the fixed annuity was purchased with after-tax savings, only the interest gain portion of your withdrawal will be taxable at ordinary income rates. (If your fixed annuity is held in an IRA, all withdrawals will be taxable.) Waiting until you’re in retirement, or in a lower tax bracket, to withdraw can reduce the taxes you owe. Note that you will incur penalties if you withdraw money before age 59½ or your withdrawal is subject to surrender charges.
  • You can continue your tax-deferral by staying with your annuity, or by rolling over your fixed annuity into a new annuity. You can choose to roll it over into another fixed annuity or a different type of annuity through a tax-free 1035 exchange. However, your existing contract may impose surrender charges, and your new contract is likely to have a new set of surrender charges.

Tax treatment of these payments can be tricky, so be sure to reach out to a tax advisor for a complete explanation.

Fixed Annuity Portfolio Strategies

Investment decisions should not be made individually or in isolation. Instead, consider your entire financial portfolio and situation when investing. Here are some ways to think about a fixed annuity fitting into your portfolio strategy.


When diversifying your retirement portfolio, you will likely select a combination of equities and bonds that’s appropriate for both your risk-appetite and your age/investment horizon. As a fixed income investment, fixed annuities have a place in any well-diversified portfolio. Consider your fixed annuity purchase as portion of your assets you’d otherwise have allocated to bonds.

Back to our example: 55-year-old Kelli’s $800,000 in savings are currently invested at a 70/30 mix of stocks and bonds. She wants to maintain her equity exposure and overall investment mix when she purchases a $100,000 5-year fixed annuity.

Fixed Annuities Diversification Pie Chart

How does she do it? At a 70/30 mix, Kelli had $560,000 (70%) invested in equities and $240,000 (30%) invested in bonds. After transferring $100,000 to a fixed annuity, Kelli will have to rebalance the remaining $700,000 to an 80/20 mix. Doing so maintains her $560,000 exposure to equities and decreases her investment in bonds to $140,000. Once adding back in the $100,000 fixed annuity, which has similar characteristics to a fixed income investment, Kelli has maintained her desired 70/30 portfolio diversification.


Breaking up your purchase into multiple fixed annuities with different contract terms is a useful strategy in a low interest rate environment. A fixed annuity laddering strategy accomplishes two things: you’re able to secure a higher interest rate today that’s only available for longer time commitments while also creating multiple opportunities to reinvest at potentially higher future rates. For example, instead of buying one 5-year fixed annuity, you could buy 3 fixed annuities with interest rate guarantee periods of 3-years, 5-years, and 7-years. The money locked in for longer will be eligible for higher rates today. And, you’ll have liquidity available at multiple dates in the future, which makes it more likely that you’ll catch higher rates if they rise in the future.

If Kelli employs this strategy, she’ll split her $100,000 purchase into multiple smaller purchases, keeping the average investment term close to 5 years. Based on current rates and her personal circumstances, Kelli decides to split her investment evenly between 3-year, 5-year, and 7-year fixed annuities, crediting 3.10%, 4.00%, and 4.10% respectively. This way, she’ll have funds whose rates are ending in 3 different years, giving her more reinvestment opportunities.

Fixed Annuities Laddering Graph
Chart shows investment and cumulative pre-tax interest. Chart shows assumed rates of return based on a $100,000 investment, and is not indicative of any particular annuity’s return..
Fixed Annuity + Annuitization vs. Longevity Annuity

With your fixed annuity, you have several options when the initial interest rate period ends. If you are planning to annuitize your fixed annuity, you may be better off purchasing a longevity annuity today. The money you invest in a longevity annuity will produce a guaranteed lifetime income stream starting at some point in the future, resembling what your annuitized fixed annuity will look like.

Fixed Annuities Comparison Graph

Whereas the fixed annuity will become liquid at the end of the contract term, the longevity annuity is locked-in, and its value can only be accessed through income payments. A fixed annuity plus annuitization strategy has more liquidity and optionality, but a longevity annuity will likely offer higher income payments.

The two strategies are summarized in the table below.

Fixed Annuity + Annuitization

Longevity Annuity


Money is invested in a fixed annuity

Money is invested in a longevity annuity.

Deferral Phase

Account accumulates with interest. Some liquidity is available.

Insurance company invests your money, but its growth is invisible and illiquid.


Money is as available. Annuitization elected, effectively purchasing at this time an


immediate annuity



Payout Phase

Income payments begin immediately and continue for life.

Income payments begin at the end of the deferral period and continue for life.

Fixed Annuity Terminology & Options

Fixed annuities are relatively simple investments, but there’s still some terminology, features, and options that you’ll need to understand. We’ve outlined some key concepts for you here.

Interest Rates

When you buy a fixed annuity, you are locking in a return that’s guaranteed for the contract term. The fixed annuity could be structured to offer the same crediting rate every year or a different rate in the first year, which is higher than in subsequent years. Ultimately, and assuming you won’t be cashing out early, what matters is the yield to the end of your interest rate term, or the annual effective return you’re earning over the full locked-in period. Finally, at the end of the contract, you’ll have the option for continue the fixed annuity with an annually renewable rate. Here’s how the rates will be identified:

  • Base Rate: annual interest rate credited to your account during the contract term
  • Additional First Year Interest Rate Bonus: additional interest rate that might be added to the base rate in the first year
  • Yield To End of Term: the effective annual interest rate when spreading the bonus rate evenly over every year
  • Renewal Rate: after the contract term ends, your money will continue to earn interest at the prevailing renewal rate, which moves according to market conditions
  • Guaranteed Minimum Renewal Rate: the lowest renewal rate possible (floor)
Surrender/Contract/Guarantee Period & Rates

The contract term for a fixed annuity is actually the period during which surrender charges apply. During these years, if you withdraw more than what’s allowed – typically 10% of your account value – fees will be assessed. Most fixed annuities have pre-set declining surrender charge schedule which can start as high as 10% in the first year and will then decline by typically 1% per year. Here’s how the surrender charge period will be identified:

  • Surrender Charge Period: years during which you’ll be charged to access anything greater than the free withdrawal
  • Surrender Charges: Rates applied to amount surrendered above free allowance for each year of the surrender charge period

Note that typically the surrender charge period will be the same as the rate guarantee period, but products are occasionally structured to have a longer surrender charge period. In this case, the guaranteed rate will be in effect for only a few years, after which you’ll earn the renewal rate until the surrender charge period ends. This option could make sense if you expect interest rates to increase.

Free Withdrawals

Fixed annuities typically allow you to access a portion of your money penalty-free. The allowance will differ from carrier to carrier, but it’s often cumulative interest or 10% of the account balance. You should only plan to take advantage of these withdrawals if you’re at least 59½, as the IRS imposes a 10% penalty on withdrawals made before you reach that age.

Note that if your fixed annuity is qualified and was purchased within a 401(k) or IRA, any applicable required minimum distributions will be withdrawable penalty-free.

Market Value Adjustment vs. Book Value

There are two types of fixed annuities: those with a market value adjustment (MVA) or without, known as book value (BV). The MVA or BV classifications only impact you if you decide to withdraw funds early. In the case of a book value fixed annuity, the amount you’re able to withdraw will simply be the account value less surrender charges described above. However, a fixed annuity with a market value adjustment could reduce the amount you’re able to access upon surrender.

The market value adjustment will, as the name suggests, adjust the amount you’re able to surrender based on market conditions at that time. If interest rates have gone up since purchase, an additional fee will be assessed that lowers the withdrawal value. The reverse is also true. If interest rates have gone down since purchase, the amount you’re able to withdraw will actually increase.

While seemingly bizarre, fixed annuities with MVAs are actually very common and well-liked, offering higher interest rates than their BV counterparts. The market value adjustment protects the insurance company from adverse behavior by charging you for surrendering in a rising rate environment. That’s because the insurance company would otherwise lose money liquidating assets to fund your surrender (bond prices go down when interest rates go up). Having this downside protection means they can offer you a higher rate.

Fixed Annuity Online Buying Tips

It’s now possible to make your fixed annuity purchase online. Instead of in-person meetings and paper applications, we’ve built the technology to provide you real-time fixed annuity rates online and generate your application for the insurer digitally. We’re licensed to provide these products to you, and we’re available via chat, email, or phone to provide personalized assistance.

Here is the process to secure your fixed annuity online:

  1. Check rates using the free Fixed Annuity Marketplace, being sure to filter them by your state and the amount you want to invest.
  2. Review the details of the annuities and your rates.
  3. Once you’re ready, click “Apply” on any new quote or locked quotes in your account.
  4. Fill out the online application in under 10 minutes.
  5. Our team will follow up to confirm your purchase and submit the application to the insurer(s) on your behalf.

Buying a fixed annuity is easier when you’re equipped with the right information. In addition to being available to help walk you through the process, Blueprint Income has compiled a list of things to keep in mind:

Where to Buy a Fixed Annuity

Fixed annuities are sold via insurance agents, brokers, and financial advisors. It’s also possible to shop online for a fixed annuity via our website. Our Fixed Annuity Marketplace allows you to easily compare fixed annuities side-by-side and filter them for the specifications that meet your needs.

Focus on Interest Rate & Credit Rating

Fixed annuities are largely uniform from carrier to carrier, meaning you can make your decision based on just two things: the interest rate being offered and the insurer’s credit rating. An insurer’s credit rating, similar to a bond’s rating measures their financial strength and ability to meet future obligations. Like bonds, the higher the credit rating, the lower the rate. Buy the product that offers the best rate at the rating that’s right for you.

Laddering Strategy

Just like with CDs, you can use a laddering strategy by buying multiple fixed annuities with staggered terms, i.e. 3-, 4-, 5- and 6-year terms. Because they come due at different dates, the hope is that you’ll be able to take advantage of an upswing in interest rates.