Best Fixed Annuity Rates for September 2024

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Retirement expenses can be unpredictable. A surge in healthcare costs or an unexpected bill can wipe out your savings. Inflation can stretch your budget, and volatility in the market can lower your returns. That’s why some retirees include annuities in their financial plans. These low-risk, low-return insurance products can generate a predictable stream of income to supplement other retirement funds.

With a fixed annuity, you’re guaranteed a minimum interest rate for the period specified in the contract. The higher the interest rate, the more your money can potentially grow.

What Is the Best Fixed Annuity Rate in 2024?

The recent round of inflation may not have been good for your wallet, but rising interest rates mean insurance companies can pay higher payouts to annuity holders.

You can find several annuity products such as the ones Gainbridge offers. The FastBreak™ annuity provides terms between three to 10 years.

The following fixed annuity rates are accurate as of Aug. 26, 2024.

Best 2-Year Annuity Rates

Best 3-Year Annuity Rates

Best 5-Year Annuity Rates

Best 10-Year Annuity Rates

Although interest rates for fixed annuities are fixed, the insurance company still can raise or lower rates during the contract period. The fixed part of the rate is the guaranteed minimum rate described in the contract. The advertised rate when you purchase the annuity may be only for a certain period of time. And that time period may not coincide with the surrender period, or the time you will hold the contract before annuitizing.

Annuity rates change regularly, and fixed annuities see the greatest impact from the Fed’s rate. This is why insurers were able to increase payments for annuities in 2022 when the Fed started raising interest rates to combat inflation.

However, the Fed’s actions aren’t the only factor insurers consider when setting interest rates for fixed annuities. Before you invest, make sure you understand when and how your interest rate can change and compare the rates at that time.

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What Is a Fixed Annuity?

An annuity is a contract made between an insurance company and an investor. In exchange for premium payments from the investor, the insurance company agrees to pay a certain amount of money in the future. A fixed annuity comes with a guaranteed minimum interest rate — set by the insurance company providing the annuity, which means you can better predict the amount of income it will produce.

Fixed annuities differ from variable annuities, which invest premium payments in equities, mutual funds or other variable investments. This is why the rate of return for these products can vary.

How Fixed Annuities Work

Annuity contracts have two distinct phases: accumulation and payout. During the “accumulation phase” of the contract, the investor pays the premium to the insurance company, which then invests the money to earn interest. In the “payout phase,” the insurance company makes periodic payments to the annuitant, usually for the rest of their life.

Annuity Payouts

When you begin taking payments, you annuitize the contract. This means that your investment becomes a stream of income, and you will receive payments for the rest of your life. The “lump sum” amount you invested in the contract no longer exists.

The amount of the annuity payout depends on a number of factors. These factors include the amount of premium(s) paid into the contract, the rate of return and the age at which the annuitant begins taking payments.

Deferred vs. Immediate Annuities

Annuities may begin making payments immediately or after a period of time. An immediate annuity, as the name indicates, begins paying out right away and can only be purchased with a single premium. Deferred annuities begin making payments at some point in the future.

In either case, annuities are designed to make payments for the rest of the annuitant’s life. For this reason, many people use annuities to provide them with an income stream in retirement, using the annuity as a sort of “personal pension.”

How Does Annuitization Work? Examples

Here are two examples that illustrate how annuitization works. Suppose two investors, Jack and Jill, each have a fixed annuity. They each invested $100,000, and with growth, their contracts are now each worth $125,000.

Jack and Jill are now 70 years old. They both annuitize their contracts. They will each get $500 a month for the rest of their lives — this is for illustration only. Jack would likely get a higher payout because, actuarily speaking, men have shorter life expectancies.

Jack dies two years later. He has received $12,000 in annuity payments. There is no death benefit on an annuitized contract, so that’s all he or his beneficiaries will get from his $100,000 investment.

Jill, on the other hand, lives to age 95. She has received $150,000 in annuity payments, even though her contract had a value of $125,000 when she annuitized it.

Some contracts allow for payments to continue for a “period certain.” This means that payments will be made for a certain period of time or for the rest of the annuitant’s life, whichever comes last. If Jack had selected a “life with 10-year certain” payout option, his beneficiaries would have continued to receive payments for eight more years after he died.

Are Fixed Annuities a Good Buy?

Fixed annuities can be a good buy. They typically work like a certificate of deposit you buy from a bank. You agree to give up access to your money for a period of time, allow it to earn interest, and collect your money at the end of the period. Fixed annuities tend to have higher interest rates compared to CDs, which means they can potentially earn more money during the accumulation phase.

For example, Bask Bank is offering a two-year CD with an APY of — one of the top rates available for this CD term. The best two-year annuity rate is , as noted in the chart above.

In addition to a favorable interest rate, annuities have other features that make them attractive to some retirees. Annuities grow tax-deferred — you don’t pay taxes on the interest earned until you withdraw money.

You can contribute as much as you want to an annuity, unlike IRAs and 401(k)s, which have limits. You may have the option to purchase riders to customize the annuity, such as a death benefit rider that lets you give the annuity to a beneficiary after your death.

Annuity Pros and Cons

Here are some of the pros and cons to consider if you’re looking to invest in an annuity.

Pros

• Guaranteed income
• Taxes are deferred, similarly to traditional IRAs
• Downside guarantee

Cons

• Cannot withdraw before age 59 ½ or be subject to IRS taxes
• May have surrender penalties if you cancel contract
• Many annuities come with high fees

How To Compare Fixed Annuities

When comparing fixed annuities, it’s important to understand your guaranteed rate, the term length of your investment, and the financial rating of the insurance company. This helps you gauge the value of your annuity, how much you’ll make (at a minimum) and how long the contract lasts.

Guaranteed Rate

The guaranteed rate is the interest rate that you will earn annually over the life of your annuity contract.

Annuity Term Length

The annuity term is the length of your contract, which is typically up to 10 years for a fixed annuity. It’s important to compare similar annuities with the same contract length to get a true comparison. You also need to use the annuity term length for income planning purposes, as you will receive regular payouts, but can be penalized for withdrawing additional funds early.

Insurer Credit Rating

It’s important to review the credit rating of your chosen insurance company for an annuity to ensure they have the financial strength to make the required payments. You can search for the name of your insurance company and “A.M. Best Rating” to find the credit rating. A.M. Best rates insurance companies from A++ down to D, depending on the financial strength of a company.

Fixed Annuity vs. CD 

Fixed annuities and CDs can provide a fixed rate of return for those seeking steady income, but they operate a bit differently. Fixed annuities are a contract with an insurance company that offers guaranteed income in retirement, while CDs allow you to earn interest by locking up funds for a fixed amount of time. 

Here’s how fixed annuities and CDs compare:

How Are Annuities Taxed?

Annuities that are funded with non-qualified, or after-tax funds are treated similar to a retirement account in regards to taxation. You don’t have to pay taxes on the growth in your annuity, so the interest earned is tax-free until you start making withdrawals. One advantage is that you only pay income taxes on the growth (interest) when you start withdrawing funds in retirement, instead of the entire amount withdrawn.

If you fund an annuity inside a tax-protected account, similar to an IRA, then there are no real tax advantages, as you would save on taxes within the account when choosing any type of investment. A downside of funding a qualified annuity is that all withdrawn funds are taxed at ordinary income rates, and may be subject to required minimum distributions, or RMDs.

What You Need To Apply for Annuities

To apply for an annuity, you will need to provide personal and financial information, including:

• Full name
• Address
• Occupation
• Photo ID (driver’s license)
• Beneficiaries (of policy)
• Estimated income and expenses
• How you’ll fund the annuity

You may also need to answer a questionnaire to make sure the annuity is a good fit, and to help you choose the right annuity for your situation.

In some cases, you may also need to speak with an insurance agent to complete the application and funding process.

Once you’ve applied, the insurer will need to manually review your application and will send you next steps to fund the policy. Once you have transferred funds over to initiate the policy, it still may take a week or so to complete underwriting and issue the policy.

Before You Invest

Before you purchase a fixed annuity, make sure you understand all of its features, benefits and drawbacks. Know what your interest rate will be, and if and when that rate can change. Understand what your options are if you need to withdraw the money prior to annuitization. You may need to pay a surrender charge or deal with tax consequences that leave you with less money than you expected.

Make sure you’re purchasing your annuity from a reputable insurance company. Annuities are not FDIC-insured — they are backed by the insurance company’s ability to pay them. If the insurance company closes its doors, you could lose the money you invested and never see the returns.

Final Take

Annuities are complex, often misunderstood products. However, there are many different fixed annuities, and none of them is right for everyone — but one may be right for you. Understanding all the features and constraints, and recognizing that it’s a long-term investment, is critical to finding the right fixed annuity for your needs.

When shopping for an annuity, look for the one with the features that offer you the greatest benefits and meet your needs. With a fixed-rate annuity, the issuer sets an interest rate that could change over time. However, your contract also specifies a minimum guaranteed rate that stays in effect for the entire term of the contract. This security — plus the possibility of a guaranteed income stream — make them worth investigating.

Jacob Wade, Karen Doyle and Daria Uhlig contributed to the reporting for this article.

Data is accurate as of Aug. 26, 2024, and is subject to change.

Annuity rates were sourced from Annuity Resources and from additional research by our editorial team.

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