Fixed Index Annuity Rates

Today’s Best Fixed Index Annuity Rates by Term

Highest CAP rates by term, annual point-to-point, based on the S&P 500®. Not all insurers and rates are available in all states.

What Are Fixed Index Annuities?

Fixed index annuities (FIAs) are an investment product typically purchased from insurance companies. Annuity performance is linked to a financial index, such as the S&P 500 Composite Stock Price Index. 

FIAs are a popular choice among investors because they have rates and caps that provide protection when the market is performing poorly and the opportunity to earn higher interest, up to the annuity’s cap, when the market is performing poorly. 

The balance between risk and protection makes them ideal for investors looking for a steady income that allows for more growth than a fixed annuity but less risk than a variable annuity. And, because your annuity is getting market exposure, the potential returns are generally higher than some other common investment vehicles, such as a certificate of deposit, or CD. 

How Fixed Index Annuity Rates Work

When you purchase an FIA, you make a premium payment to the issuing company in exchange for regular annuity payments and guaranteed minimum interest accrual. Interest accrual is tied to the performance of the selected market index. 

If the index performs well, you’ll earn more interest. If the index performs poorly, you’ll accrue less interest, though you won’t experience losses. That’s because when you buy an FIA, the insurance company protects against risk by promising a minimum rate of return, even in years when the index performs poorly. 

Usually, an FIA has a floor, which is the minimum interest the annuity can earn. This may be as low as 0%, protecting you from losses. However, it’s offered between 1% and 3%, allowing you to maintain growth in market downturns.  

On the flip side, however, your gains may also be limited in several ways, including:

• Rate caps: Some FIAs include rate caps, which limit the amount of interest you can earn, regardless of market performance. For instance, if the annuity has a market cap of 10% but the index is performing at 15%, earnings will still top out at 10%
• A participation rate: Some annuities limit you to a certain percentage of gains. The limit is called the participation rate. If your annuity offers a 100% participation rate, you keep 100% of the gains. However, most set a lower participation rate, such as 80 %to 90%.
• Interest rate spreads: Insurers sometimes subtract a specific percentage of earned interest rate before crediting gains to your account. For example, if the interest rate spread is 4% and the index has a 10% gain, your annuity would pay you a 6% gain.
• A participation rate: Some annuities limit you to a certain percentage of gains. The limit is called the participation rate. If your annuity offers a 100% participation rate, you keep 100% of the gains. However, most set a lower participation rate, such as 80 %to 90%. 
• Interest rate spreads: Insurers sometimes subtract a specific percentage of earned interest rate before crediting gains to your account. For example, if the spread is 4% and the index has a 10% gain, your annuity would pay you a 6% gain.

If you’re interested in a fixed index annuity, shop around and compare rates and terms. Rates and terms, including caps, floors and participation rates, can vary dramatically by company and product.

For example:

• $100,000 invested in an annuity with a 100% participation rate, an 8% cap, and no spread would return $108,000 if the market index returned 10%. 
• $100,000 invested in an annuity with an 80% participation rate and an 8% cap would return 6.4% if the market index returned 10%. The cap would lower returns to 8%, of which you’d get 80%. 
• $100,000 invested in an annuity with a 100% participation rate, no cap, and a 3% spread would return $107,000 if the market index returned 10%.

It’s clear that shopping around can significantly affect how much money your investment earns. Comparing your options is more straightforward with the right tools.

Advantages of Fixed Index Annuity Rates

While you have many options for what to invest in, there are some significant advantages of fixed index annuities. Here are some of the biggest benefits. 

• Higher earning potential: If the market your index is tied to performs well, you’ll earn more. As such, earning potential is higher for an FIX and a standard fixed annuity. 
• Risk tolerance: FIA floors prevent losses, even in years when the market performs poorly. 
• Tax-deferred growth opportunities: Since you can defer taxes on gains, your money can grow faster without the worries of a big IRS bill each year.

How to Choose the Best Fixed Index Annuity

You want to find the best when investing in a fixed index annuity. Here are some key factors to consider:

• Insurer’s financial strength rating: A financial strength rating indicates how likely it is that an insurer can meet their payment obligations. Rating agencies like AM Best and Moody’s analyze an insurer’s financial strength and provide scores or grades to help consumers identify fiscally reliable companies. 
• Annuity’s terms: Confirm the participation rate, the cap, the floor and the spread to determine the minimum and maximum returns you may earn over time.
• Your financial goals: Ensure the annuity you buy aligns with your immediate and future financial goals. For example, consider when you want your annuity to start providing a regular income, the level of risk you are willing to take and the amount you can afford to invest. 

By exploring options carefully, comparing rates from multiple annuity providers, and thoroughly analyzing and comparing annuity terms, you can find the right investment product for your needs.

Editor Norah Layne contributed to this article.