What the Fed Rate Hike Means for Annuity Rates

Are Fixed Annuity Rates Going Up?

Yes, annuity rates are going up and will likely continue to do so in the near term. For the first time since 2023, the Fed raised rates 25 basis points on September 16, and they did it with a unanimous vote.

The 10-year closed at 5.01%, a level not seen since mid-2007, and to top it off 16 of 18 FOMC members expect at least one more rate hike this year. The week of the September 16 rate hike, the best 7 year fixed annuity rate was 6.95% simple interest (5.83% compounding). Rates likely won’t peak too much higher but I expect to see more A and A+ rated carriers announcing rate increases.

What the 10-year Treasury above 5% could be signaling

The 10-year yield crossing 5% is a bigger story than the Fed’s quarter point. It tells you what bond investors, not policymakers, expect from inflation and risk over the next decade. Here is what it could be signaling.

• The market doubts inflation is beaten. Yields climbed into the Fed meeting on worries that the Fed can’t bring inflation under control while oil prices stay elevated (Trading Economics). The Fed’s own projections put PCE inflation at 3.7% this year.
• Investors want to be paid to lend long again. With the fed funds rate at 3.75% to 4.00% and the 10-year at 5%, long bonds pay about a point more than overnight money. That gap is why longer MYGA terms can pay more than shorter ones right now.
• 5% has been a ceiling before, not a floor. The 10-year peaked at 5.26% in June 2007 and closed 2008 at 2.25%. It reached 4.98% in October 2023 and finished that year at 3.88% (FRED).

None of that predicts where yields go next. But if 5% turns out to be another peak, savers who locked in longer terms near the top will be glad they did, and that is the case against waiting too long.

The Fed rate hike is good news for annuity rates and for the retirees that buy them, but less directly than the headlines suggest. The Federal Reserve raised the federal funds rate a quarter point to a target range of 3.75% to 4.00% in a unanimous 12-0 vote. It was the first hike since 2023, it reversed last December’s cut, and the committee’s projections point to one more increase before year-end.

Fed rate hike and annuity rates: the short version

Fixed annuity rates follow long-term bond yields, not the overnight rate the Fed controls. The 10-year Treasury is near 5%, a 19-year high, and that is what insurance carriers price off. The Fed’s move matters less than you’d think, and the bond market’s move matters more.

What to expect over the next several weeks:

• MYGA rates hold firm or tick higher
• Income annuity payouts stay near their strongest levels in years
• Fixed index annuity caps improve slowly
• None of it happens overnight, and none of it is guaranteed to last

Today’s best multi-year guaranteed annuity (MYGA) rates pay 6.10% for 3 years, 6.55% for 5 years, and 6.95% for 7 years.

Why the bond market sets annuity rates, not the Fed

The federal funds rate is what banks charge each other to borrow overnight. It moves savings account and money market yields almost immediately, which is why those get the headlines. Annuities work differently.

When you buy a fixed annuity, the insurance company invests your premium mostly in investment-grade corporate bonds and Treasuries with maturities of five to ten years or longer. The rate it can guarantee you is roughly what those bonds yield, minus the carrier’s costs and profit margin. So the number to watch is the 10-year Treasury yield and the corporate bond yields that trade above it, not the Fed’s target range.

That distinction matters this week for two reasons.

The bond market moved first. The 10-year Treasury climbed for months on sticky inflation and was already near 5% going into the meeting. Carriers have been repricing to that reality all summer, which is why MYGA rates have been strong since spring. The quarter-point hike confirms the trend more than it starts one.

The Fed and the bond market don’t always move together. In late 2024 the Fed cut rates three times and the 10-year yield went up, because investors worried about inflation and deficits. The reverse can happen too: if this hike convinces the market that inflation is beaten, long yields could fall even as the Fed keeps tightening, and annuity rates would drift down with them.

Our own rate history shows it. Top 5-year MYGA rates climbed through the Fed’s 2022-23 hiking cycle, then kept rising and peaked in mid-2024, a year after the Fed’s last hike and just before it started cutting.

A Fed hike is a signal, not a switch. When you buy or wait, you’re really betting on where long-term yields go next. The Fed’s own projections say the inflation fight isn’t over: the committee expects headline PCE inflation around 3.7% at year-end and doesn’t see 2% until 2029.

What to expect, product by product

Multi-year guaranteed annuities (MYGAs)

MYGAs respond fastest, because a MYGA is essentially a bond portfolio with a guarantee wrapped around it. Carriers typically reprice every few weeks, and many raised rates over the summer as yields climbed. Expect small, steady increases over the next month, not a jump.

The best rates often come from carriers you may not recognize, so check the AM Best rating before the rate. Every carrier on our fixed annuity rates page carries an AM Best rating, shown beside its rate.

Fixed index annuities (FIAs)

The cap or participation rate on an FIA depends on the carrier’s options budget. That’s the amount left after the carrier invests your premium in bonds and sets aside what it needs to guarantee your principal. Higher bond yields enlarge that budget, which buys more index options and translates into higher caps and participation rates.

The second input is the cost of those options, which rises with stock market volatility. When markets turn choppy on rate worries, pricier options can offset the benefit of higher yields. Caps have improved over the past year and should keep improving if yields hold, though FIA pricing typically lags MYGA rates by one to two quarters.

Income annuities (SPIAs and DIAs)

Immediate and deferred income annuity payouts are priced off long bond yields plus your age. Of the three product types, they are the least sensitive to a Fed move, because life expectancy and mortality credits do most of the work. Wade Pfau’s pricing analysis shows a one-point rise in interest rates lifts a 65-year-old’s payout rate by about 0.6 percentage points, from 6.73% to 7.36%.

Age moves the number more. In the same analysis, payout rates climb from 4.52% at age 50 to 13.43% at age 80, so a few years of waiting can do as much as a full-point rate increase, while costing you those years of income. Run your own numbers with the income annuity calculator below.

Existing contracts

If you already own a fixed annuity, this week changes nothing about it. Your rate is locked for the guarantee period. Where it matters is at renewal: if your MYGA’s guarantee period ends in the next 12 months, the renewal rate your carrier offers will reflect today’s market, and most contracts give you a window of about 30 days to review it before it takes effect.

Your 4 options after the Fed rate hike

Nobody knows whether long-term yields go higher from here. The Fed’s projections lean toward one more hike this year and then a long hold, and the bond market has priced much of that in. Every saver is choosing among the same four options.

1. Lock in today’s rates for as long as possible. With the 10-year Treasury at a 19-year high, a 7- or 10-year MYGA locks today’s yield in, tax-deferred, for the full term. This fits a CD or money market maturing in the next 90 days, and anyone who would rather have a guaranteed number than a chance at a better one.
2. Build an annuity ladder. Spread the money across 3-, 5-, and 7-year terms to diversify interest rate risk. If rates keep rising, the 3-year matures and renews into the better market. If rates fall, the 7-year carries today’s rate forward, so you don’t have to time the top.
3. Wait. Sit in a short-term MYGA, a money market, or a T-bill and watch for the next move. The case for waiting is the Fed’s own projection of one more hike. The cost is that a quarter point of Fed movement rarely becomes a quarter point of annuity yield, and carriers can pull today’s best rates at any time.
4. Buy some today and wait on the rest. Put half in now and hold the other half in a short-term MYGA or money market through the next Fed meeting. If rates rise, the second half catches them; if they fall, the first half already locked in. It’s the ladder idea applied to timing instead of term, and for most savers it removes regret in either direction.

Whatever you decide, compare across carriers. Rates on the same term and rating can differ by more than the Fed’s entire move this week. You can see current fixed annuity rates from 90+ top annuity companies, run your own numbers with our annuity calculators, and compare products side by side without giving us your phone number first.

When you’re ready to talk it through, call 855-277-8088 or request a free annuity quote.

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