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Highest Fixed Annuity Rates for September 2021

In this guide, we’ll explain what a fixed annuity is, how they work, fixed annuity taxation, current annuity rates, the pros and cons, and how to purchase a fixed annuity.  

Today's Best Fixed Annuity Rates by Term

As of September 7, 2021 the best fixed is 3.20% offered by Atlantic Coast Lifes’ Safe Haven 10 Year Annuity. The table below lists the best annuity rates available today by term.

You’ll find Fixed Index Annuity Rates here if you’d like to look at them instead.

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What is a Fixed Annuity?

A fixed annuity or multi-year guaranteed annuity (MYGA) is a type of tax-deferred retirement savings account that pays a guaranteed interest rate for a set period of time. 

Fixed annuities are often compared to Certificates of Deposit (CDs) and are sometimes referred to as a “CD Type Annuity” because of the many similarities. Essentially, a fixed annuity is a CD sold by an insurance company instead of a bank.  

One key difference is that the earnings from a fixed annuity are not taxed until you withdraw your money; whereas CD interest is taxed in the year it is earned – regardless if you spend it.

NOTE: You may also hear a fixed annuity referred to as one of these names:

How Does a Fixed Annuity Rate Work?

With a fixed annuity, the insurance company guarantees both the rate of return (the interest rate) and the payout to the investor. 

The specified interest rate is set upfront and so is the length of the contract. For instance, a 5 year fixed annuity with a 3.10% interest rate will pay 3.10% for 5 years guaranteed. 

At the end of your initial guarantee period, you will be offered a new interest rate which is called a renewal rate. You will typically have a 30-day window to decide whether or not you want to accept the renewal rate or transfer your money somewhere else. 

You are able to transfer to a new annuity without any tax consequences using a 1035 exchange.

Source: “Learn to Invest, Investment Types, Annuities, Fixed Annuities.”  Financial Industry Regulatory Authority (FINRA).  Visit FINRA’s Fixed Annuities Webpage

Fixed Annuity vs. CD's

Fixed annuities behave similarly to a certificate of deposit (CD). Each of them provides principal protection, meaning your account value will not decrease due to market performance. Fixed Annuity Rates are generally higher than CD rates.

A fixed annuity, or MYGA, guarantees a set interest rate for a specified period of time – just like a CD. However, Fixed annuity guarantees are backed by the claims-paying ability of the issuing insurance company and are not insured by the FDIC like a CD.

You can view your state’s guarantee association’s annuity coverage limit by visit our State Insurance Guaranty Associations page. The associations provide a safety net for their state’s annuity owners and guarantee policyholders continue to receive coverage.

 FIXED ANNUITYCD (CERTIFICATE OF DEPOSIT)
SOLD BYInsurance CompaniesBanks
AMOUNT YOU CAN INVEST$2,000 - $1,000,000Essentially Any Amount
INVESTMENT DURATION3 years - 10 years3 months - 5 years
INTEREST RATESRates by product but usually higher.Varies by financial institution, term and investment amount.
LIQUIDITYUsually, 10% annually or interest earned.Almost always accumulated interest.
GUARANTEESThe claims-paying ability to issue Insurer and by State Guaranty Funds.Backed by the FDIC up to $250,000 per depositor, per institution.
DEATH BENEFITPassed directly to the beneficiary without probate process.Probate process required.
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Can I Exchange My Annuity for a New Fixed Annuity?

The Internal Revenue Service (IRS) allows you to exchange an annuity policy that you own for a new annuity policy without paying tax on the investment gains earned on the original contract.

This rule is governed by Section 1035 of the Internal Revenue Code which is why these are called “1035 Exchanges.”
Below is a direct link to the complete text of the code.

U.S. Code > Title 26 > Subtitle A > Chapter 1 > Subchapter O > Part III > Section 1035

 

1035 Exchange Rules

There are a couple of important rules that must be followed in order to receive the benefits of a 1035 Exchange.

  • The tax code says that the old annuity policy must be exchanged for a new policy – you cannot receive a check

  • You can 1035 exchange from a life insurance policy to an annuity
  • You can 1035 exchange from an annuity to a long-term care policy.
  • You can not 1035 exchange from an annuity to a life insurance policy

Here is an example of an actual 1035 Exchange form you would need to complete to move from one annuity to another via a 1035 Exchange.

Advantages of a 1035 Exchange

The primary advantage of using a 1035 exchange to change your life insurance policy or annuity choices is to avoid triggering taxes on those transactions. 

As long as you’re exchanging contracts within the guidelines set by the IRS you all of the above events will be tax-free to you. 

What to Consider When Buying a Fixed Annuity

Fixed annuities are the most simple of any annuity which also makes them the easiest to shop for.  Below are a few features to consider other than the guaranteed fixed annuity rate when you are considering a fixed annuity.

  • Term: Typically the longer contract you purchase the higher your guaranteed interest rate will be. However, that is not always the case in today’s low-rate environment.
  • Liquidity: Most all fixed annuities have some type of annual free withdrawals; either: Interest-only withdrawals annually, or 10% Free Withdrawals (10% of the previous years’ account value) annually.
  • Insurance Company’s Financial Rating: It is important to consider an insurance companies financial rating because it is an indicator of its ability to fulfill policyholder obligations.

Annuity Products with Highest Fixed Annuity Rates

How are fixed annuities taxed? Roll of 100 dollar bills and blue glass globe sitting on desk with the text "annuity taxation" and my annuity store logo

How is a Fixed Annuity Taxed?

The deciding factor on how your fixed annuity will ultimately be taxed depends ultimately on the money you used to buy it. 

Roth IRA Annuity Taxation

If you purchase a fixed annuity with funds from a Roth individual retirement account (IRA) or Roth 401(k) it is very likely you won’t have to pay federal income tax at all on the money when you withdraw it from your annuity. That includes the principal and interest.

Qualified Funds

Firstly, an annuity purchased with qualified funds is considered a qualified annuity. Qualified funds are monies that you have never paid taxes on such as a traditional IRA or a traditional 401(k). It would be nice if the IRS would allow going from tax-deferred to tax-free but that is not the case.

Non-Qualified Annuity Taxation

A non-qualified fixed annuity is an annuity purchased with after tax-dollars such as money from a taxable personal savings or checking account or a personal brokerage account.

If you own a non-qualified annuity, you will only pay income tax on the interest you earn from the annuity but not the funds you used to purchase it. Insurance companies keep track of your “cost-basiswhich is the original amount used to purchase an investment. 

Fixed Annuity Pros and Cons

Advantages of a Fixed Annuity

 
  • Fixed Annuities Provide a Guaranteed Rate of Return
  • A Fixed Annuity Grows Tax-Deferred
  • Fixed Annuities Provide Principal Protection
  • Fixed Annuities Provide Some Liquidity
  • Fixed Annuities are Simple Products
  • Disadvantages of a Fixed Annuity

    • 10% IRS Penalty on Withdrawals from a Fixed Annuity Made Before Age 59½
    • A Fixed Rate Annuity Offers Few Income Options
    • Early withdrawal penalty for taking more than the annual free withdrawal amount during the initial contract term.

    Frequently Asked Questions

    Yes. Insurance companies as a whole have a long history of stability, even through our nation’s most difficult economic times. Fixed annuities are backed by the full faith and credit of the issuing insurance company so it is important to consider the financial strength of the issuing company.

    A “CD Type Annuity” is a type of fixed annuity that guarantees a specified interest rate for a set number of years. They are also often referred to as a Multi Year Guaranteed Annuity.

    When you purchase an annuity contract you are committing to leave your money there for the duration of your annuity (usually 2 to 10 years). However, most fixed annuities allow to take free withdrawals of interest earned or up to 10% free withdrawals annually (varies by annuity company and contract)

    There are no fees for any of the fixed annuities listed on this page and in general, fixed annuities do not have any fees. However, there are some fixed annuity products that offer optional income riders, death benefit riders, or long term care riders for an additional annual fee.

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