A fixed annuity pays interest at a rate the carrier declares for a stated period—often one year at a time on a multi-year contract. You are not invested in stocks or mutual funds; the insurer backs the rate with its general account. That simplicity is why fixed annuities show up in plans where the goal is preserve principal and know the crediting schedule, not chase index caps.
Most shoppers land here after maxing tax-deferred workplace plans or when they want CD-like certainty with tax-deferred compounding. At Local Life Agents, we compare declared rates and surrender schedules across 30+ A-rated carriers so you are not guessing from one carrier's mailer.
Key Takeaways
- Declared rate. Fixed annuities credit a carrier-set rate; principal is not exposed to equity market loss inside the contract
- Surrender window. Contracts commonly run 3–10 years with charges that step down over time
- Tax deferral. Growth is tax-deferred until withdrawal; gains are taxed as ordinary income
- Free withdrawals. Many contracts allow roughly 10% per year without surrender penalty
- Not a MYGA. A MYGA locks one rate for the full guarantee period; a traditional fixed annuity may reset annually
How Does a Fixed Annuity Work?
You pay a single premium or a series of premiums. The carrier allocates those dollars to its general account and credits interest at the declared rate for the current period. At each renewal date, the carrier can set a new declared rate within contract limits—your account value grows by credited interest minus any rider fees.
Surrender charges apply if you withdraw more than the free amount before the surrender period ends. Typical schedules start around 7–9% in year one and decline to zero by the end of the term. Free-look periods (often 10–30 days after issue) let you cancel without penalty if the contract is not what you expected.
When the surrender period ends, you can take a lump sum, roll the value into another annuity via 1035 exchange, annuitize for income, or leave the contract in force if the carrier allows continued accumulation.
How Is a Fixed Annuity Different From a MYGA?
A multi-year guaranteed annuity (MYGA) is a fixed annuity subtype that locks one guaranteed rate for the entire guarantee period—three, five, seven, or ten years are common. A traditional fixed annuity may reset its declared rate annually even inside a longer surrender schedule.
If your priority is rate certainty for the full commitment window, see our MYGA guide. If you want a shorter mental model—“CD with tax deferral and insurance guarantees”—MYGAs are usually the cleaner comparison.
Current guaranteed yields live on the MYGA rates page. This article is the product mechanics.
| Feature | Fixed annuity (declared rate) | MYGA |
|---|---|---|
| Rate structure | Declared rate, often reviewed annually | One guaranteed rate for full term |
| Typical term | 3–10 year surrender | 3–10 year guarantee period |
| Best for | Flexible renewal if rates rise | Locking today’s rate for full period |
| Liquidity | Usually 10% free withdrawal | Usually 10% free withdrawal |
What Are Typical Fixed Annuity Rates?
Declared rates move with the interest-rate environment and carrier portfolio yields — not with the S&P 500. Treat any rate quote as illustrative until it is tied to your state, premium size, and carrier filing.
A traditional fixed annuity that resets annually is a different quote than a MYGA that locks the full term. Compare those structures in the table above, then run carrier numbers for your age and state.
Before you commit
A fixed annuity is a declared-rate contract that can reset. That reset is the decision. A rate that looks fine this year and a rate the carrier can cut next year are different products, and a MYGA that locks the whole term is a third product.
Before we illustrate a fixed annuity, we lock four things:
- Reset vs lock. Annual declared rate, or a multi-year guarantee. If you need the rate held, this page is the wrong contract.
- Surrender years. The premium has to sit through the schedule. The free withdrawal is not full liquidity.
- Where the money sits now. Non-qualified money gets the tax deferral. Money already inside an IRA does not get a new one.
- The same premium and state. Declared rates move with the carrier's portfolio. A national average is not your quote.
Tell us the premium, the state, and whether the rate has to stay put. We illustrate the fixed contract that matches that, or we tell you it should be a MYGA instead.
Tax Treatment
Earnings grow tax-deferred inside the contract. When you withdraw, the IRS generally taxes gain first (LIFO for non-qualified contracts). Withdrawals before age 59½ can trigger a 10% penalty on the taxable portion in addition to ordinary income tax.
Qualified money (IRA or 401(k) rolled into an annuity) follows retirement-account rules—required minimum distributions still apply on tax-qualified contracts. Consult your tax advisor on whether a non-qualified fixed annuity belongs in your bracket and Medicare planning.
Expert Tip: Read the renewal fine print
I ask what the minimum guaranteed rate is after the first period and how the carrier treated in-force contracts the last time rates dropped. That history tells you more than the headline first-year credit.
—Ryan Wood
Who Is a Fixed Annuity Best For?
Fixed annuities fit conservative accumulators who want principal protection and tax-deferred growth without index caps or participation math. Common profiles include pre-retirees parking rollover dollars for three to seven years, retirees keeping a “safe bucket” separate from equities, and high cash-balance savers who have maxed other tax-deferred options.
Who Should Not Buy a Fixed Annuity?
Skip fixed annuities if you need full liquidity within the surrender period, if you require equity-like upside, or if you cannot hold the contract past the surrender schedule without relying on withdrawals above the free amount. If you need income to start within 12 months, a SPIA or systematic withdrawal plan from existing assets is usually more direct than a new accumulation contract.
Pros
- Declared crediting with no market downside inside the contract
- Tax-deferred growth on non-qualified premiums
- Predictable account value for planning
- 10% free withdrawals on many contracts
- State guaranty association backing if carrier fails
Cons
- Surrender charges limit early access
- Ordinary income tax on gains at withdrawal
- 10% IRS penalty before 59½ on taxable gains
- Declared rates can fall at renewal on non-MYGA contracts
- Less upside than indexed or equity portfolios in strong bull markets
Compare fixed, indexed, MYGA, and SPIA structures on the annuity types hub.
Conclusion
Declared-rate fixed annuities work when you want principal protection and can live with a rate that may reset. A captive agent shows one company's renewal history.
Local Life Agents compares declared rates and surrender schedules on the same premium and state before you fund. Return to the annuities hub for rates, companies, and comparison guides.
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