Key Takeaways
- Annuities come in four main types: fixed, fixed index, variable, and immediate. Each is built for a different job.
- Fixed annuities (MYGAs) guarantee a set rate for a set term, similar to a CD but with tax-deferred growth.
- Fixed index annuities offer market-linked growth potential and never lose value to market declines.
- Immediate annuities convert a lump sum into guaranteed income that starts within 12 months.
What Is an Annuity?
An annuity is a contract between you and an insurance company. You pay a premium, either as a lump sum or over time, and the insurer guarantees growth, income, or both in return. Annuities are the only financial product that can guarantee income for as long as you live.
Fixed annuities are regulated by state insurance departments. Variable annuities are also securities, so they fall under SEC and FINRA oversight as well.1 If a carrier ever fails, state guaranty associations protect policyholders, and most states cover at least $250,000 in annuity benefits per owner, per company.5
The short answer: there are four main types of annuities. Fixed annuities guarantee a rate, fixed index annuities tie growth to a market index with downside protection, variable annuities invest directly in the market, and immediate annuities convert a lump sum into income right away.
The Four Main Types of Annuities
Every annuity answers two questions: how does the money grow, and when does income start? The table below compares the four types side by side.
| Type | How It Grows | Risk Level | Best For |
|---|---|---|---|
| Fixed (MYGA) | Guaranteed interest rate for a set term | Low | CD-style guaranteed growth |
| Fixed Index | Linked to a market index, never loses value to market declines | Low to moderate | Growth potential with principal protection |
| Variable | Invested directly in market subaccounts | High | Long-term growth, comfortable with losses |
| Immediate (SPIA) | Converts a lump sum into payments | Low | Income that starts within 12 months |
Annuities are not a niche product. Americans bought a record $432.4 billion of them in 2024, the third record year in a row.4
Fixed Annuities (MYGAs)
A multi-year guaranteed annuity, or MYGA, works much like a bank CD. You choose a term, usually 3 to 10 years, and the insurer guarantees a fixed interest rate for that entire period. Your growth is tax-deferred until you withdraw it.2
Because rates change daily, we publish live numbers instead of quoting them in articles. You can compare current MYGA rates from 90+ top annuity companies, updated every day.
Why retirees choose MYGAs
- Guaranteed rate: the rate you lock is the rate you get, for the full term.
- Tax deferral: interest compounds without a 1099 each year, unlike a CD.
- Higher yields: MYGAs have historically out-yielded same-term CDs. See our fixed annuity vs. CD comparison.
Fixed Index Annuities
A fixed index annuity (FIA) credits interest based on the performance of a market index, such as the S&P 500. When the index rises, you earn interest up to a cap or participation rate. When the index falls, you earn zero for that period, but you never lose principal to market declines.
The trade-off is straightforward: you give up some upside in exchange for a floor of zero. FIAs also commonly offer optional income riders that can guarantee lifetime income. Our fixed index annuity guide covers caps, participation rates, and crediting methods in detail.
Immediate vs. Deferred: When Income Starts
Beyond how money grows, annuities split on timing. Immediate annuities begin paying within 12 months of purchase. Deferred annuities grow first and pay later, or never annuitize at all.
The IRS treats the two differently as well. Earnings withdrawn from a deferred annuity are taxed as ordinary income, and a portion of each immediate annuity payment is a tax-free return of principal, calculated with the exclusion ratio.2
Which Type of Annuity Is Right for You?
Match the product to the job you need done, not the other way around. These are the most common fits we see:
- You want a guaranteed rate with no market risk: a fixed annuity (MYGA).
- You want growth potential but cannot afford losses: a fixed index annuity.
- You need income starting now: an immediate annuity (SPIA).
- You want income starting in 5 to 10 years: a deferred annuity with an income rider.
Before you buy anything, read our step-by-step guide on how to buy an annuity, and run your own numbers with our annuity calculators. The NAIC’s buyer’s guide is also worth a read before signing any application.3
Frequently Asked Questions
What is the safest type of annuity?
Fixed annuities (MYGAs) and immediate annuities are the safest types. Both provide contractual guarantees backed by the issuing insurance company, and neither exposes your principal to market losses. Carrier financial strength still matters, so check AM Best ratings before you buy.
Can I lose money in a fixed index annuity?
You cannot lose money to market declines in a fixed index annuity. Your credited interest floor is zero in a down year. You can lose money to surrender charges if you withdraw more than the free amount during the surrender period.
How are annuities taxed?
Annuity earnings grow tax-deferred and are taxed as ordinary income when withdrawn. Withdrawals before age 59 1/2 may also owe a 10% IRS penalty on the earnings portion. Immediate annuity payments are partly a tax-free return of principal.
What is the difference between an immediate and a deferred annuity?
An immediate annuity starts paying income within 12 months of purchase. A deferred annuity grows your money first, with income available later if you choose. Immediate annuities suit people already retired; deferred annuities suit people still building savings.
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Disclaimer: This content is for informational and educational purposes only. It does not constitute financial, tax, or legal advice. Annuity products vary by state and carrier. Always consult a licensed financial professional before making any financial decisions. My Annuity Store is an independent marketplace and does not provide investment advice.
