Annuity type · Sioux Falls & South Dakota
Fixed Annuity
A fixed annuity is a contract with an insurance company in which the insurer credits interest at a rate it declares. It is the most straightforward annuity type, and people often consider it when they want growth that does not move with the stock market.
Who it may suit
- Savers who want a predictable, declared interest rate
- People approaching or in retirement who want to reduce exposure to market swings
- Anyone looking to defer taxes on interest beyond what other accounts allow
How it generally works
You pay a premium to an insurance company, either as a single lump sum or over time. The insurer credits interest at a rate it declares, and that rate is guaranteed for a stated period under the terms of the contract.
Interest generally accumulates tax deferred, so you are typically not taxed on it until you take money out. The contract also states a minimum guaranteed rate that the credited rate will not fall below.
When you are ready for income, you can usually withdraw money subject to the contract's rules, or annuitize, which converts the value into a stream of payments. What is available depends on the contract you choose.
Potential advantages
- A declared rate that does not fluctuate with market performance
- Tax-deferred accumulation while the money stays in the contract
- A stated minimum guaranteed interest rate in the contract
- Optional income options that can pay for life
Important limitations
- Surrender charges usually apply if you withdraw more than the contract allows during the surrender period
- Growth potential is generally lower than market-based alternatives
- Guarantees depend entirely on the issuing insurer's ability to pay claims
- Inflation can reduce what fixed payments buy over long periods
Access to your money
Most fixed annuities include a surrender period during which withdrawing more than a stated amount triggers a surrender charge, and possibly a market value adjustment. Many contracts allow a penalty-free withdrawal each year, commonly a percentage of the value, but the amount and the rules vary by contract. Review the surrender schedule before you buy.
What may affect your rate or income
- The insurer's currently declared rate
- The length of the guarantee period you select
- The premium amount, since some contracts band rates by deposit size
- Any optional riders elected, which can carry a charge
- Prevailing interest rates at the time of purchase
Optional rider categories
- Guaranteed lifetime withdrawal benefit (GLWB)
- Enhanced or return-of-premium death benefit
- Nursing home or terminal illness waiver
Rider availability, definitions, and cost vary by contract and carrier, and riders often carry a charge.
How it is generally taxed
Growth inside an annuity is generally tax deferred, meaning you are typically not taxed on interest credited until you take money out. Withdrawals of gain are generally taxed as ordinary income rather than at capital-gains rates, and amounts withdrawn before age 59 and a half may be subject to an additional 10% federal tax. Tax treatment depends on your situation and on whether the contract is qualified or non-qualified. We are not tax advisors, so please confirm details with a tax professional.
How it compares
Fixed Annuity: frequently asked questions
Is a fixed annuity the same as a CD?
No. A CD is a bank deposit that is typically FDIC insured. A fixed annuity is an insurance contract, and its guarantees are backed by the issuing insurer rather than by the FDIC. The tax treatment and the withdrawal rules also differ.
Can I lose money in a fixed annuity?
A fixed annuity credits interest at a declared rate and does not lose value due to market performance. You can still receive back less than you put in if you surrender early and surrender charges or a market value adjustment apply.
What happens to the money when I pass away?
Most contracts pay a death benefit to your named beneficiary. How it is paid and whether any enhancement applies depends on the contract and any riders you elected.
About this information
This page is general education reviewed by Big Sioux Life. It is not a substitute for the contract, the disclosure statement, or professional advice. Rates, caps, and participation rates change and vary by carrier and state, so we do not publish them here. For authoritative details, consult your state department of insurance and the specific carrier's contract documents. See our editorial policy.
This page is educational and is not insurance, financial, tax, or legal advice. Annuities are insurance contracts, not bank deposits. They are not FDIC insured and not bank guaranteed. Product availability, features, rates, caps, and provisions vary by carrier and state and are subject to change. Any guarantees are backed solely by the claims-paying ability of the issuing insurer. Withdrawals may be subject to surrender charges and a market value adjustment, and withdrawals taken before age 59 and a half may be subject to an additional 10% federal tax. No contract exists until it is issued and in force.