Fixed Annuity Advantages and Disadvantages

Fixed annuities — especially multi-year guaranteed annuities (MYGAs) — offer predictable growth and principal protection without market risk. But like any financial product, they have trade-offs. This guide explains the key advantages and disadvantages so you can decide whether a fixed annuity fits your financial plan.

What Is a Fixed Annuity?

A fixed annuity is a contract with an insurance company that guarantees a specific interest rate for a set period. MYGAs are the most popular type of fixed annuity today because they offer CD-like guarantees with tax-deferred growth and, often, higher yields.

Fixed Annuity Advantages

1. Guaranteed Interest Rate

The rate you lock in stays the same for the entire term. Market volatility does not affect your earnings.

2. Principal Protection

Your account value cannot lose money due to market changes. The insurer guarantees your principal and credited interest.

3. Higher Yields Than CDs

MYGA annuities often pay more than bank CDs of the same duration, due to how insurers invest long-term.

4. Tax-Deferred Growth

Unlike CDs, you do not pay taxes on interest each year. Taxes apply only when you take withdrawals, allowing faster compounding.

5. No Annual Fees

Most fixed annuities have no annual contract fees. You receive the full credited rate.

6. Optional Income Features

Although MYGAs are growth products, many can convert into guaranteed income later through annuitization or IRA RMD distribution planning.

Fixed Annuity Disadvantages

1. Limited Liquidity During the Term

Withdrawals above the free-allowance (usually 10% per year) can trigger surrender charges. A fixed annuity is best for money you won’t need soon.

2. Rates Are Locked In

A fixed rate is good when rates are high. But if interest rates rise after you buy, your contract’s rate does not increase.

3. Early Withdrawal Penalties

Exceeding the free-withdrawal amount or canceling early may reduce your earnings and incur surrender charges.

4. Taxes on Gains Are Ordinary Income

Unlike long-term capital gains, annuity growth is taxed as ordinary income.

5. Not FDIC Insured

Fixed annuities are backed by the issuing insurer, not the FDIC. However, state guaranty associations offer protection up to statutory limits.

When a Fixed Annuity Makes Sense

A fixed annuity is a strong fit if you want:

• Predictable and stable returns
• Better yields than CDs
• Tax-deferred growth
• No stock-market exposure
• A set time horizon of 2 to 10 years

It may not be the right choice if you need full liquidity or expect to access the funds before the term ends.

Are Fixed Annuities Safe?

Fixed annuities are considered conservative products. Your principal and interest are guaranteed by the insurer, and state guaranty associations provide an additional layer of protection. Insurer ratings matter, and it is smart to compare them when choosing a product.

Compare Today’s Fixed Annuity Rates

Rates change frequently and vary by state. Use our live MYGA rate feed to compare all available options.