Services
Fixed annuities
A stated interest rate for a defined period — with contract limits worth understanding first.
What a fixed annuity is
A fixed annuity is an insurance contract that can provide a stated interest rate for a defined period. Guarantees apply only as described in the contract and depend on the issuing insurer’s claims-paying ability. Withdrawals, surrender charges, market value adjustments, taxes, and other contract provisions can affect the amount received.
Guarantees apply only as described in the issued contract and depend on the claims-paying ability of the issuing insurer. Annuities are not bank deposits, are not FDIC or NCUA insured, and are not guaranteed by any federal government agency.
How the rate is set
The applicable rate is established under the issuing carrier’s contract and issue process and may change before the contract is issued. A consumer does not receive a rate until a contract is issued.
Interest is credited under the terms of the issued contract. Some contracts allow interest to be taken as income; in others it accumulates inside the contract on a tax-deferred basis until it is withdrawn. Tax deferral is not tax elimination — withdrawals of interest are generally taxable as ordinary income, and withdrawals before age 59½ may be subject to an additional federal tax.
Liquidity and withdrawals
Many contracts allow a limited amount to be withdrawn each year without a surrender charge. Free-withdrawal provisions vary by contract, year, state, and carrier. Withdrawals above that amount can trigger a surrender charge and, where applicable, a market value adjustment, which can increase or decrease the amount received.
- Surrender charge schedule — how long it runs and how quickly it declines.
- Market value adjustment — whether the contract has one and how it works.
- Free-withdrawal amount and any waivers, which vary by contract and state.
- Insurer financial strength — the guarantee depends on the insurer, not on a government agency.
When it may be worth discussing
A fixed annuity is generally discussed when money can stay in place for the full term, a stated rate matters more than access, and the owner understands that the guarantee comes from the insurer. It is not designed for emergency funds or money that may be needed on short notice.
Further reading
Skyway is an independent insurance agency. We provide insurance education and insurance-product guidance. We do not provide legal, tax, accounting, or investment advice. Consult the appropriate licensed professional for advice in those areas.