Fixed Annuity
A fixed annuity is an insurance contract that credits a guaranteed interest rate set by the issuing carrier. The rate may be guaranteed for one year and reset annually (traditional fixed annuity) or guaranteed for a multi-year term, typically 2 to 10 years (a MYGA, or multi-year guaranteed annuity). The carrier backs the guaranteed rate from its general account — primarily investment-grade corporate bonds and Treasuries — and is subject to state insurance reserve requirements. Fixed annuities are not registered as securities; they do not have a prospectus, and the consumer does not bear investment risk in the way a mutual fund holder does. The contract value cannot decline due to market movements.
A 60-year-old places $100,000 in a 5-year MYGA paying 5.60% guaranteed. At the end of year 5, the contract value is $131,295 (compounded). She can withdraw the full amount, renew at the then-current rate, or 1035-exchange into another carrier's fixed annuity. A traditional fixed annuity, by contrast, might pay 5.60% in year one but reset to 4.25% in year two if rates have fallen.
Why it matters
Fixed annuities are the simplest annuity category. The consumer always knows exactly what they will earn during the rate-guarantee period. This makes them the closest annuity equivalent to a bank certificate of deposit, with two structural advantages: typically higher yield (carrier portfolio yields exceed bank deposit rates), and tax deferral on the interest credited.
How to evaluate
Compare the declared rate, the length of the rate guarantee, the surrender schedule, and the renewal rate floor (the minimum the carrier can declare after the initial guarantee period). A short renewal-rate floor on a long contract can hide a large rate cut after the initial term.
In the contract
Look for "declared rate," "guarantee period," "renewal rate," "minimum guaranteed interest rate" (the contractual floor below which the rate cannot drop), and the surrender schedule.
Related terms
Researching an annuity? A licensed specialist who has already screened the carriers and contracts can walk you through the trade-offs in plain English.
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