What Is a Fixed Annuity and How Does It Work?

A fixed annuity does one thing well: it takes market risk off the table entirely. You deposit a premium, the insurance company guarantees a specific interest rate for a defined period, and that rate does not move regardless of what the stock market, the bond market, or the Federal Reserve does during that time. Your principal is protected. Your rate is locked. Your outcome is predictable.

That predictability is worth something specific to a specific type of person — usually someone within five to ten years of retirement who has watched their portfolio swing and decided that a guaranteed foundation matters more than chasing the last dollar of upside. In April 2026, the best fixed annuity rates reach 6.30% on 5-year terms. The best 5-year CD pays 4.34%. The gap is real, the growth is tax-deferred, and the mechanics are simpler than most people expect.

Key Takeaways

• Fixed annuities guarantee a specific interest rate for a defined term — the rate cannot be reduced once locked in
• Top fixed annuity rates in April 2026 reach 6.30% on 5-year terms and 6.05% on 10-year terms
• Growth is tax-deferred — no annual tax bill on interest, unlike CDs which are taxed every year the interest is credited
• Principal is guaranteed against loss regardless of market conditions — the insurance company assumes all investment risk
• Surrender periods typically run 3–10 years; most contracts allow 10% annual free withdrawals without penalty
• Withdrawals before age 59½ trigger a 10% IRS penalty on the taxable portion — same as an early 401(k) withdrawal
• No contribution limits — useful for high-income earners who have maxed tax-advantaged accounts

What a Fixed Annuity Actually Is

A fixed annuity is a contract between you and an insurance company. You deposit a lump sum — or in some cases a series of payments — and the carrier credits a guaranteed interest rate for the length of the term you've selected. At maturity, you can withdraw the balance, roll it into a new contract, or convert it to a guaranteed income stream.

The insurance company invests your premium in conservative fixed-income instruments — primarily investment-grade bonds and government securities. The spread between what they earn on those investments and what they credit to your contract is how they make money. Your rate is contractually guaranteed regardless of how their underlying portfolio performs.

This is the core distinction from a fixed indexed annuity: a fixed annuity credits a set rate with no link to market index performance. No cap rates, no participation rates, no crediting mechanics to understand. You know your rate on day one and it does not change.

Fixed Annuity Rates: April 2026

The most common fixed annuity structure is the Multi-Year Guaranteed Annuity — a MYGA — which locks in a guaranteed rate for the full term length with no annual reset. These are the rates we reference when comparing fixed annuities to CDs and other guaranteed products.

Two things worth noting in this table. First, the rate leaders at 5- and 10-year terms are B+ rated carriers — not A-rated. That's a legitimate tradeoff conversation. A B+ carrier paying 6.30% versus an A- carrier paying closer to 5.50% on a 5-year term is a different risk calculation than it would be on a 10-year term. Position size relative to state guaranty association limits matters here. Second, the 1- and 2-year rates from A- carriers are competitive — you don't have to step down in rating to get a meaningful rate advantage over bank CDs at shorter terms.

For the full current rate board sorted by term and carrier, see the MYGA rates page. For a deeper look at carrier financial strength and rate maintenance, the best MYGA companies page covers the full evaluation.

The Four Types of Fixed Annuities

"Fixed annuity" is a category, not a single product. Four distinct structures sit under that umbrella, each built for a different use case.

Multi-Year Guaranteed Annuity (MYGA) is the most common fixed annuity structure. It guarantees the same rate for the entire term — 2, 3, 5, 7, or 10 years — with no annual reset. The rate you lock in on day one is the rate you earn every year until maturity. For clients comparing fixed annuities to CDs, this is the direct equivalent — same concept, typically higher rate, tax-deferred.

Deferred fixed annuity accumulates interest at a guaranteed rate during an accumulation phase, then converts to income at a future date. The rate may reset annually rather than locking for the full term — read the contract carefully before assuming multi-year rate stability.

Single Premium Immediate Annuity (SPIA) converts a lump sum into a guaranteed income stream that begins within 30 days to one year of purchase. There is no accumulation phase — you are buying a monthly payment, not a growing account value. For clients who need income now rather than growth, a SPIA is the right structure.

Fixed period annuity pays guaranteed income for a specific number of years — 10, 15, or 20 — regardless of whether you are alive to receive all payments. Monthly amounts are typically higher than lifetime options because the carrier's obligation ends at the period's conclusion.

Annuities

See what 30+ A-rated carriers will pay you.

See your numbers

How the Tax Deferral Changes the Math

This is the comparison point that gets glossed over most often. CD interest is taxable as ordinary income every year it is credited — even if you roll it over and don't touch the money. A fixed annuity's interest accumulates without any annual tax obligation. You pay when you withdraw, at ordinary income rates on the gain portion.

For a client in the 24% federal bracket placing $200,000 into a 5-year term: the best CD at 4.34% nets roughly 3.30% after annual tax drag. The best fixed annuity at 6.30% compounds the full rate inside the contract with no annual reduction. The headline gap is 1.96 percentage points. The after-tax gap for a 24% bracket taxpayer is closer to 3 points — and that difference compounds over five years on a $200,000 position into a number worth paying attention to.

If you plan to withdraw in a lower tax bracket in retirement, the gap widens further. Consult a CPA on the sequencing — the order you pull from taxable and tax-deferred accounts in retirement meaningfully affects your effective rate and Medicare premium calculations.

Liquidity: What You Can Access and When

Most fixed annuities impose surrender charges during the contract term — typically 7–9% in year one, stepping down annually to zero by the end of the surrender period. The surrender period usually matches the rate guarantee period: a 5-year MYGA has a 5-year surrender schedule.

The practical offset: most contracts allow 10% of the account value out each year without any surrender charge. On a $200,000 contract, that's $20,000 annually — accessible without penalty. For clients whose realistic liquidity need during the term is below that threshold, the surrender schedule is largely theoretical.

Withdrawals before age 59½ trigger a 10% IRS penalty on the taxable portion — the same rule that applies to early IRA or 401(k) distributions. Fixed annuities are retirement vehicles, and the IRS treats early access accordingly.

At maturity, the surrender period ends completely. You can withdraw the full balance, roll into a new contract at current rates, or annuitize for guaranteed income — with no carrier-imposed restriction.

Fixed Annuity vs CD vs Treasury: Side by Side

Treasuries offer the strongest principal guarantee — US government backing — but are fully taxable at the federal level and offer no tax-deferral advantage. CDs offer FDIC insurance up to $250,000 and are fully liquid at maturity, but are taxed annually and pay significantly less than fixed annuities on equivalent terms in the current environment. Fixed annuities lead on rate and tax efficiency; the tradeoff is that the guarantee is backed by the insurance carrier rather than a federal agency.

Who Fixed Annuities Are Best For

Fixed annuities fit a specific client profile and work poorly outside of it.

The clearest fit: pre-retirees aged 50–65 who want to de-risk a portion of their portfolio with a guaranteed return, tax-deferred growth, and no exposure to market volatility. High-income earners who have maxed their 401(k) and IRA contributions and need additional tax-deferred accumulation. Clients who are comparing bank CD rates to annuity rates and doing the after-tax math correctly.

Who Fixed Annuities Are NOT For

Clients who need full liquidity within the surrender period — a fixed annuity penalizes early full withdrawal. Clients with short time horizons who won't benefit from the tax deferral. Clients who want market participation — a fixed annuity credits a set rate and that's it; if you want index-linked upside with a floor, a fixed indexed annuity is the right structure. Clients under 59½ who may need access — the IRS penalty on early withdrawal changes the math significantly.

FAQ