What Is a Fixed Annuity? How It Works, Rates & Pros and Cons (2026)

A fixed annuity is an insurance contract that pays you a guaranteed interest rate on your deposit for a set number of years, with principal protected from market losses and interest growing tax-deferred until you withdraw. In April 2026, competitive fixed annuities pay between 4.00% and 6.30% APY depending on the term length and carrier rating.

Fixed annuities are the simplest annuity product. There are no participation rates, no index caps, no complicated formulas, and no fees deducted from your balance. You deposit money, the carrier credits interest at the contracted rate, and your balance grows predictably year after year.

This guide covers exactly how a fixed annuity works, the two main types, today’s rates, pros and cons, how they compare to CDs, how they are taxed, and how to buy one without overpaying.

What Is a Fixed Annuity?

A fixed annuity is an insurance product that credits a guaranteed interest rate to your account for a set period of years. Your principal is protected from market losses, and the interest grows tax-deferred until you withdraw it. The contract is issued by a licensed insurance carrier and backed by that carrier’s claims-paying ability.

The “fixed” in fixed annuity refers to the interest rate. The carrier guarantees the rate in writing. Neither a stock market crash nor a bank failure can change what the insurance company owes you. The only real risk is the financial strength of the carrier itself, which is why buying from A-rated or better companies matters.

Fixed annuities are often called “fixed rate annuities” or simply “MYGAs” when the rate is locked for multiple years. All three phrases describe the same core product: a guaranteed-rate insurance contract that functions like a tax-deferred CD.

How Does a Fixed Annuity Work?

When you buy a fixed annuity, you deposit a lump sum with the insurance company. The carrier credits interest at the contracted rate each year, and your account compounds tax-deferred until you withdraw.

Here is a real-dollar example. Robert, age 64, deposits $150,000 into a 5-year MYGA paying 5.75% APY. At the end of year one, his balance is $158,625. By the end of year five, his balance is $198,543. Robert pays no taxes on any of that growth until he takes a withdrawal, and his principal is guaranteed the entire time.

During the surrender period (typically the same length as the rate guarantee), withdrawals beyond the free withdrawal amount trigger declining surrender charges. A standard surrender schedule on a 5-year contract might be 7% in year one, dropping to 6%, 5%, 4%, 3%, then 0% after year five.

At the end of the surrender period, you have four options: withdraw the full balance, renew with the same carrier at the new rate, execute a 1035 exchange to a different carrier, or annuitize for guaranteed lifetime income. Most retirees either renew or 1035 exchange to lock in a fresh competitive rate.

Types of Fixed Annuities

Two products are commonly called “fixed annuities,” and confusing them is the most common mistake first-time buyers make. Here is how they differ.

Multi-Year Guaranteed Annuity (MYGA)

A MYGA locks in one fixed interest rate for the entire contract term. If you buy a 5-year MYGA at 5.75%, you earn 5.75% every year for 5 years. No resets, no surprises.

MYGAs are the direct CD equivalent. They are the product most retirees want when they say “fixed annuity.” The 3, 5, 7, and 10-year terms are most common. Learn more in our MYGA guide.

Traditional Annual-Reset Fixed Annuity

A traditional fixed annuity credits one rate in year one, then the carrier declares a new rate each year for the life of the contract. The rate can rise or fall, but it can never drop below a contractual minimum (typically 1.00% to 3.00%).

Annual-reset products make sense when interest rates are rising and you want your crediting rate to follow the market up. They are less popular in a stable or falling rate environment because the carrier has no obligation to renew at a competitive rate.

Which One Is Right for You?

If you want rate certainty for 3 to 10 years, choose a MYGA. If you believe rates will rise and you want flexibility to capture higher renewal rates, an annual-reset product can work, but ask for the carrier’s 5-year renewal history first. A carrier that renews old contracts at the guaranteed minimum is not worth the flexibility.

Current Fixed Annuity Rates (April 2026)

The table below shows live rates from top-rated carriers on our tracked network. Rates are updated daily and reflect the highest-paying A-rated carriers nationwide.

Rates vary by state, credit rating, and deposit size. A $250,000 deposit often unlocks a “banded” rate that is 0.10% to 0.25% higher than the standard posted rate. To see all current offers by term, visit our best MYGA rates page, or filter by term: 3-year, 5-year, or 7-year.

Fixed Annuity vs. CD: Which Is Better?

Fixed annuities usually beat bank CDs for savers in the 22% federal tax bracket or higher with a 5+ year time horizon. The reason is tax deferral, which lets your interest compound uninterrupted instead of being taxed every year.

Here is what a $200,000 deposit looks like after 5 years at 5.00%, comparing a taxable CD to a tax-deferred fixed annuity.

The annuity column shows the pre-withdrawal balance. When you do withdraw, the $55,256 in gains is taxed at your ordinary income rate. If you are retired and in a lower bracket when you pull the money out, the advantage grows even larger.

CDs have one advantage the annuity does not: FDIC insurance up to $250,000 per depositor, per bank. Fixed annuities are backed by state guaranty associations instead, which cover up to $250,000 per carrier in most states. For deposits above that limit, spreading across two A-rated carriers eliminates the concentration risk. See our full annuity vs. CD comparison for more scenarios.

Fixed Annuity Pros and Cons

Pros

• Guaranteed principal. Your original deposit cannot decline due to market losses. Only the carrier’s solvency matters, which is why A-rated carriers are the starting point.
• Tax-deferred growth. No 1099 each year. Interest compounds uninterrupted, which is worth thousands over 5 years for anyone in the 22% bracket or higher.
• Guaranteed rate. With a MYGA, you know the exact balance on day one of year five. Rare in today’s market.
• No contribution limits. Unlike IRAs and 401(k) plans, you can deposit $10,000 or $1,000,000 in a single contract.
• Penalty-free access. Most contracts allow withdrawals of up to 10% of the account value per year without a surrender charge.
• Simple to understand. One rate, one term, one balance. No caps, no participation rates, no riders to decode.

Cons

• Surrender charges. Withdrawing more than the free amount during the initial term triggers fees, typically starting at 6% to 9% and declining each year.
• Ordinary income tax on gains. Withdrawals are taxed at your income rate, not the lower long-term capital gains rate.
• 10% IRS penalty before 59½. The penalty applies to the taxable portion of any withdrawal taken before you reach age 59½.
• No market upside. In a strong bull market, a fixed annuity will underperform equities. The trade-off for guaranteed returns is no participation in stock gains.
• Not FDIC-insured. Fixed annuities rely on state guaranty association coverage, which is less familiar to most savers than FDIC insurance.
• Inflation risk. A locked 5.75% rate looks great today but would lose purchasing power if inflation spikes to 7% or 8%.

Who Should Buy a Fixed Annuity?

Fixed annuities are designed for conservative savers age 55 and up who want predictable growth, tax deferral, and protection from market volatility. The product fits best in four specific situations.

• Pre-retirees and retirees with safe money. If you have $100,000 to $500,000 earmarked as the bond or cash portion of your retirement portfolio, a fixed annuity pays more than most bond funds with no interest rate risk to principal.
• CD rollover candidates. Savers holding maturing CDs can roll into a fixed annuity for better after-tax yield, assuming they do not need the money before the surrender period ends.
• Maxed-out retirement savers. Anyone who has already funded their 401(k) and IRA for the year can use a non-qualified fixed annuity as an additional tax-deferred savings bucket.
• Anyone who cannot tolerate market losses. If watching your account drop 20% in a correction would cause you to sell at the bottom, a fixed annuity gives you a floor.

Fixed annuities are not appropriate for younger savers with long time horizons, anyone who needs liquidity, or investors seeking inflation-beating growth. For retirees who want lifetime income rather than accumulation, a single premium immediate annuity may be a better fit.

How Are Fixed Annuities Taxed?

Interest credited inside a fixed annuity grows tax-deferred. You receive no 1099 each year while the money stays in the contract. The IRS treats the growth as untaxed until you take a withdrawal.

When you do withdraw, gains come out first under the “last-in, first-out” (LIFO) rule, and they are taxed as ordinary income. Your original principal returns tax-free, since you deposited it with after-tax dollars (assuming the annuity is non-qualified). If your contract is funded with pre-tax IRA or 401(k) money, the entire withdrawal is taxable.

Withdrawals before age 59½ are subject to an additional 10% IRS penalty on the taxable portion. The penalty does not apply in cases of death, disability, a series of substantially equal periodic payments under Section 72(q), or certain other exceptions. For complete rules, see the IRS guidance on pensions and annuities.

At death, the remaining account value passes directly to your named beneficiary outside of probate. The beneficiary pays ordinary income tax on the gain but avoids the 10% early withdrawal penalty regardless of age. For the full breakdown, read our annuity tax guide.

How to Buy a Fixed Annuity (Step by Step)

Buying a fixed annuity is simpler than most people expect. The entire process usually takes 10 to 15 business days from application to funded contract.

Step 1: Define your goal. Are you rolling over a maturing CD, creating a bond-alternative inside your retirement portfolio, or setting aside an emergency reserve with better yield than a money market? The goal dictates the term length. Five years is the most popular choice because it balances yield against liquidity.

Step 2: Shop at least 5 carriers. First-year rates vary by 0.50% to 1.00% between carriers for the same credit quality and the same term. Never accept a single quote. An independent broker representing 30 or more carriers can run a side-by-side comparison in minutes. Bank and wirehouse advisors typically sell only one or two captive products.

Step 3: Verify the carrier’s financial strength rating. Stick with A- or better from AM Best, and cross-reference against S&P and Moody’s. The Comdex composite score (a percentile ranking across all rating agencies) is the fastest way to compare strength. Target Comdex 80 or higher for deposits over $100,000.

Step 4: Read the contract before signing. Key items to confirm: the guaranteed minimum interest rate, the full surrender charge schedule year by year, the free withdrawal provision (10% per year is standard), the nursing home and terminal illness waivers, and the death benefit language.

Step 5: Submit the application and fund the contract. For non-qualified money from a checking or savings account, you wire the funds or write a check. For IRA or 401(k) rollovers, the carrier coordinates a custodian-to-custodian transfer so you never touch the money (and never trigger a taxable event).

Step 6: Use the free-look period. Every state requires a free-look window, usually 10 to 30 days after the contract is delivered, during which you can cancel for a full refund with no penalty. Read every page during this window. If anything differs from what you were told, cancel and start over.

Step 7: Track your renewal date. Mark the contract anniversary on your calendar. When the surrender period ends, you have a short window to withdraw penalty-free, renew, or 1035 exchange to a better carrier. Carriers count on buyers forgetting this date so the contract auto-rolls at whatever rate the carrier chooses to offer.

For a deeper walkthrough, see our complete guide to buying an annuity.

State Guaranty Association Protection

Fixed annuities are not FDIC-insured, but they are protected by state guaranty associations in all 50 states. If the issuing carrier becomes insolvent, the state association steps in and covers annuity values up to a statutory limit.

In most states, the limit is $250,000 per owner, per carrier. A handful of states set the limit higher ($300,000 to $500,000 in some cases). The coverage is a safety net, not a substitute for buying from a strong carrier in the first place. An A-rated carrier with a 100-year history is the primary protection. The guaranty association is the backup.

For deposits above the state limit, the simplest solution is to split the money across two unrelated A-rated carriers. Two $250,000 contracts at different carriers provide full coverage for a $500,000 position. For state-specific limits, see our state guaranty association guide or check directly with the National Organization of Life and Health Insurance Guaranty Associations.

Common Fixed Annuity Mistakes to Avoid

Buying on the first-year rate alone. The most expensive mistake by far. A carrier offering 5.75% in year one but renewing at 2.80% in year two has not sold you a 5.75% annuity. Over 5 years, the blended yield is closer to 3.20%. Always ask for the carrier’s 5-year renewal history before buying an annual-reset product. MYGAs do not have this risk because the rate is locked.

Locking up money you might need. Surrender charges typically run 6% to 9% in the early years. If you put your entire emergency fund into a 7-year contract and need to pull it in year two, you lose thousands to the surrender penalty. Never annuity-lock more than you can comfortably leave alone for the full term.

Ignoring state guaranty limits. A single $400,000 contract with one carrier leaves $150,000 uncovered by the typical state guaranty cap. Splitting across two carriers eliminates that exposure. The rate difference between the top two carriers in any given month is rarely more than 0.10%, so there is almost no yield cost to diversifying.

Withdrawing before age 59½. The 10% IRS early withdrawal penalty on top of ordinary income tax makes pre-59½ withdrawals extremely expensive. If there is any chance you will need the money before you reach 59½, a fixed annuity is the wrong tool. A high-yield savings account or a short-term Treasury bill is a better fit.

Buying through a captive channel without comparison shopping. Banks and wirehouses typically sell annuities from one or two carriers. Independent brokers representing 30+ carriers routinely find rates 0.50% to 1.00% higher for the same credit quality. On $200,000 at 5-year terms, that gap compounds to $10,000 or more in additional interest.

Missing the 30-day renewal window. Most fixed annuities offer a short window around each contract anniversary when you can withdraw or 1035 exchange without triggering surrender charges. Miss it and you are locked in for another contract period at whatever renewal rate the carrier chooses. Put the date on your calendar the day you buy.

Frequently Asked Questions