What Is a Fixed Rate Annuity?

A fixed rate annuity generally refers to a Multi-Year Guarantee Annuity, or MYGA.

A MYGA is a fixed insurance contract issued by a life insurance company.

It provides a guaranteed interest rate for a specific period of time.

That makes it one of the simplest annuity products to understand.

Key Takeaways

• Fixed rate annuities are commonly MYGAs.
• MYGAs provide a guaranteed interest rate for a specified term.
• Fixed annuities are regulated at the state level.
• Available rates can vary by state.
• Liquidity provisions differ by contract.
• Carrier financial strength should be evaluated alongside the rate.

Fixed Annuity vs. Fixed Rate Annuity

There are several types of fixed annuities.

They can include:

• Single Premium Immediate Annuities
• Deferred Income Annuities
• QLACs
• Fixed Index Annuities
• MYGAs

But when people ask about a fixed rate annuity, they are usually referring to a MYGA.

How a MYGA Works

You deposit money with a life insurance company.

The company guarantees an interest rate for a specific contract term.

Terms are commonly available from one year through ten years.

You choose the duration that fits your goals.

Why MYGAs Are Compared With CDs

MYGAs are often described as the annuity industry's version of a CD.

Both provide a fixed rate for a specified period.

The difference is that a MYGA is issued by a life insurance company rather than a bank.

That means the regulation, guarantees, taxation, and liquidity provisions are different.

Fixed Annuities Are State-Regulated

MYGAs are insurance products.

They are regulated at the state level.

That means the contracts and rates available to you can depend on your state of residence.

A product available in one state may not be available in another.

How to Find the Best Fixed Rate

The best rate is not simply the highest number you see nationally.

You need to consider:

• your state
• the term you want
• the company's rating
• liquidity provisions

Those factors determine which contract may be appropriate.

Choose the Term

MYGA terms can range from short durations to longer ones.

For example:

• one year
• three years
• five years
• seven years
• ten years

The appropriate term depends on how long you are comfortable committing the money.

Understand the Withdrawal Provisions

Not every MYGA provides the same liquidity.

Some may allow you to withdraw interest.

Others may allow a percentage of the contract value to be withdrawn each year without a surrender charge.

Some may be more restrictive.

That matters when comparing products with similar rates.

Carrier Ratings Matter

The rate should not be the only consideration.

You are entering into a contract with a life insurance company.

That means you should also consider the financial strength of the insurer.

Ratings can come from organizations such as:

• AM Best
• Moody's
• Standard & Poor's
• Fitch

The highest rate is not automatically the best choice if the carrier does not meet your comfort level.

MYGAs and Fixed Index Annuities Are Different

A MYGA guarantees the interest rate.

A Fixed Index Annuity does not guarantee future indexed returns.

That distinction is important.

If your goal is a guaranteed rate, compare MYGAs.

Do not assume an indexed annuity will outperform the guaranteed MYGA rate.

MYGAs Can Be Used in Different Account Types

MYGAs can potentially be used with:

• traditional IRA money
• Roth IRA money
• non-qualified money

The tax treatment depends on the account type.

With non-qualified money, interest generally grows tax-deferred inside the contract until distributed.

Laddering MYGAs

You can also split money across different MYGA terms.

For example, instead of putting everything into one five-year contract, you could use multiple durations.

That can create different maturity dates and provide more flexibility.

Annuities Are Contracts

The biggest advantage of a MYGA is simplicity.

You know:

• the guaranteed rate
• the contract term
• the surrender schedule
• the liquidity provisions

There is no need to rely on hypothetical growth projections.

Where to Compare Fixed Rate Annuities

Use our annuity calculators to compare current MYGA rates by state and contract term.

Review the guaranteed rate, company rating, and liquidity provisions before choosing a contract.

The Bottom Line

A fixed rate annuity generally refers to a MYGA.

It provides a guaranteed interest rate for a specific period and is issued by a life insurance company.

The best contract depends on more than the rate.

Your state, desired term, liquidity needs, and the financial strength of the carrier should all be part of the comparison.

‍