What is a fixed indexed annuity?

A fixed indexed annuity is a contract between you and an insurance company. Your money earns interest based on the performance of a market index, such as the S&P 500, but your principal is protected from market losses. In a down year, you earn zero percent rather than losing money.

How does interest crediting work in a fixed indexed annuity?

Interest is credited based on an index calculation, typically applied annually. Common methods include participation rates (you receive a percentage of the index gain), caps (your gain is limited to a ceiling), and spreads (a fixed percentage is subtracted from the index gain). The specific method depends on your contract and the crediting strategy you choose.

Is my principal safe in a fixed indexed annuity?

Yes. Fixed indexed annuities include a floor, usually zero percent, which means your principal cannot lose value due to index performance. You are protected from down markets. However, surrendering the contract early may result in surrender charges, which could reduce your account value.

What is a surrender charge?

A surrender charge is a fee assessed if you withdraw more than the free withdrawal amount during the surrender period, typically 7 to 10 years. The charge starts at a higher percentage and decreases over time. Most contracts allow 10 percent annual penalty-free withdrawals.

How are fixed indexed annuities taxed?

Growth inside a fixed indexed annuity is tax-deferred, meaning you do not pay taxes on earnings until you withdraw funds. Withdrawals are taxed as ordinary income. If you take withdrawals before age 59 and a half, you may also owe a 10 percent IRS penalty on the earnings portion.

What happens to my money if the insurance company fails?

Insurance companies are regulated at the state level. Each state has a guaranty association that provides a level of protection to policyholders if a carrier becomes insolvent. Coverage limits vary by state, but typically range from $100,000 to $500,000. Choosing a highly rated carrier reduces this risk significantly.

What is a fixed indexed annuity?

A fixed indexed annuity is a contract between you and an insurance company. Your money earns interest based on the performance of a market index, such as the S&P 500, but your principal is protected from market losses. In a down year, you earn zero percent rather than losing money.

How does interest crediting work in a fixed indexed annuity?

Interest is credited based on an index calculation, typically applied annually. Common methods include participation rates (you receive a percentage of the index gain), caps (your gain is limited to a ceiling), and spreads (a fixed percentage is subtracted from the index gain). The specific method depends on your contract and the crediting strategy you choose.

Is my principal safe in a fixed indexed annuity?

Yes. Fixed indexed annuities include a floor, usually zero percent, which means your principal cannot lose value due to index performance. You are protected from down markets. However, surrendering the contract early may result in surrender charges, which could reduce your account value.

What is a surrender charge?

A surrender charge is a fee assessed if you withdraw more than the free withdrawal amount during the surrender period, typically 7 to 10 years. The charge starts at a higher percentage and decreases over time. Most contracts allow 10 percent annual penalty-free withdrawals.

How are fixed indexed annuities taxed?

Growth inside a fixed indexed annuity is tax-deferred, meaning you do not pay taxes on earnings until you withdraw funds. Withdrawals are taxed as ordinary income. If you take withdrawals before age 59 and a half, you may also owe a 10 percent IRS penalty on the earnings portion.

What happens to my money if the insurance company fails?

Insurance companies are regulated at the state level. Each state has a guaranty association that provides a level of protection to policyholders if a carrier becomes insolvent. Coverage limits vary by state, but typically range from $100,000 to $500,000. Choosing a highly rated carrier reduces this risk significantly.

Fixed Indexed Annuities Explained

Grow Your Savings While Protecting Your Principal

Fixed indexed annuities link your growth to a market index while guaranteeing your principal never loses value in a down market.

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$449BTotal U.S. annuity sales in 2025

100%Principal protected in down markets

50States covered

A-RatedAM Best carriers only

Index-Linked Growth

Your account earns interest based on the performance of a market index like the S&P 500, but you are never directly invested in the market. Growth potential without direct market risk.

Floor Protection

A built-in floor, typically 0%, means your principal cannot lose value in a down market year. Your savings stay intact regardless of what the index does.

Tax-Deferred Accumulation

Interest credited to your account grows without being taxed each year. You pay taxes only when you take withdrawals, allowing more of your money to compound over time.

How It Works

From Deposit to Credited Growth

You make a deposit

You transfer a lump sum or rollover funds into the annuity contract. There is no ongoing contribution requirement.

The carrier invests in bonds

The insurance company invests the bulk of your deposit in bonds to guarantee your principal. A small portion funds the index-linked options.

Interest is credited based on an index

At the end of each crediting period, the carrier calculates the gain based on your chosen index strategy: cap, participation rate, or spread.

You keep the credited growth

Any credited interest is locked in. In a down year, your interest credit is zero, but your principal never declines due to market performance.

How Do They Compare?

Feature	Fixed Indexed Annuity (FIA)	MYGA
Growth type	Index-linked (with cap or spread)	Fixed interest rate
Principal protection	Yes, floor at 0%	Yes, fully protected
Rate type	Variable (tied to index performance)	Fixed for full term
Best for	Growth potential + downside protection	Predictable, CD-like returns
Typical term	5-10 years	2-10 years
Liquidity	Surrender charges during term	Surrender charges during term

Growth type

FIA

Index-linked (with cap or spread)

MYGA

Fixed interest rate

Principal protection

FIA

Yes, floor at 0%

MYGA

Yes, fully protected

Rate type

FIA

Variable (tied to index performance)

MYGA

Fixed for full term

Best for

FIA

Growth potential + downside protection

MYGA

Predictable, CD-like returns

Typical term

FIA

5-10 years

MYGA

2-10 years

Liquidity

FIA

Surrender charges during term

MYGA

Surrender charges during term

AM Best A-Rated Carriers

Allianz LifeAthene AnnuityAmerican EquityGlobal AtlanticNorth American CompanyMidland NationalNassau LifePacific LifeF&G AnnuitiesProtective LifeTransamericaNational Western Life

Carrier availability varies by state. Not all carriers available in all regions.

Common Questions About FIAs

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