Today's Best Fixed Index Annuities

These are our 3 most popular Fixed Index Annuities (updated Friday, 2016-12-02). For expert help call 800-872-6684.

Our 3 Best Fixed Index Annuities
great american logo High 5.25% Cap Rate Annual Point-to-Point Strategy "American Legend III" Surrender Period: 7 Years Click for Details
allianz logo Increasing Income Rider With High 5.50% Cap Rate "Allianz Core Income 7" Surrender Period: 7 Years Click for Details
nationwide logo Uncapped Returns With Competitive Income Rider "Indextra" Surrender Period: 7 or 10 Years Click for Details
+Click To Read Our Tutorial On Fixed Index Annuities

Easy Tutorial with Frequently Asked Questions about Fixed Equity Index Annuities

We'll begin with the main difference between a fixed index annuity and a variable annuity:

The premium you pay to buy a fixed index annuity is not invested in a stock mutual fund or bond fund as is generally true for a variable annuity. Rather your returns depend on the performance of a benchmark index (e.g., S&P 500, Nasdaq, or Dow Jones Industrials). This means that each year on the anniversary date of your annuity, the insurance company will credit gains to your account if the underlying benchmark index increased in value during that year. The amount credited to your annuity will be determined by a cap rate or participation rate as outlined in the contract documents (see below). The good news is that if the underlying stock index experienced a loss in that year (say a 40% drop like in 2008), your fixed annuity account balance will not suffer any loss at all! In years during which the stock market loses, your index annuity simply receives a 0% credit, but no loss.

Q. How does the insurance company determine the amount of interest to credit to my annuity?

A. Fixed index annuities provide total protection against losses in years that the stock market drops. To provide this protection, the insurance company must retain some of the gains in years in which the stock market moves up. So in up years the insurance company credits you with only a portion of the overall market gains. While in bad market years you never lose. The two most common methods for figuring this out are called the “cap rate” method and the “participation rate” method.

A cap rate is the highest percentage gain that the insurance company will credit to your annuity in any period. For example, if your annuity has an annual cap rate of 7% and the underlying benchmark index grows by 10% that year; your annuity will be credited with a maximum of 7%. If the market only grew 4% that year, your annuity would be credited with 4%. You would receive gains up to the maximum percent limited by the cap rate.

A participation rate is the proportion of the gain that the insurance company will credit to your annuity. For example, if your company offers an annual 40% participation rate then in a year when the benchmark index grew 12% your annuity would be credited with 4.8% interest (which is 40% of the 12% stock market gain).

In order to achieve the greatest earning potential, you should seek out annuity contracts which offer the highest cap rates or participation rates.

Q. Which benchmark indices does this annuity offer?

A. Most index annuities benchmark their crediting method to the S&P 500. Some insurance companies also offer annuities indexed to the Dow Jones Industrials, Nasdaq or Euro Stoxx 50.

Q. Are my returns compounded each year or does the company use a simple interest formula?

A. A simple interest calculation would give you credits each year based on the initial premium you paid in the first year. A compound interest rate calculation would give you interest on the initial premium plus interest on the gains which have accrued during all the prior years. The majority of fixed index annuities use the compound interest rate method, which gives you greater earnings over time than a simple interest calculation.

Q. Does this annuity provide a Guaranteed Minimum Accumulation Value?

Some indexed annuities offer a guaranteed minimum accumulation value, which will be applied each year regardless of the benchmark performance over the life of the contract. For example, an index annuity might guarantee 107% of your initial premium, even if the benchmark index decreases year after year throughout your contract. (I.e., 100% of your initial premium plus a guaranteed minimum of 7% interest credits.)

Q. What fees will be charged for surrendering the contract and over what time period?

A. Most fixed index annuity contracts have pre-set, declining surrender fees that range in terms of time horizon (5-20 years). This means that if you make a withdrawal greater than the penalty-free amount (usually 10% annually), then you will be charged a surrender fee.

Q. Can I make penalty-free withdrawals?

A. Most insurance companies permit early withdrawals within certain guidelines that don’t trigger surrender fees. For example, 10% of the contract value may be withdrawn annually without charges being applied. Most contracts also allow you to withdraw Required Minimum Distributions free of surrender fees.

Q. What is my minimum guaranteed surrender value?

A. Many fixed index annuities will have a specified “minimum guaranteed surrender value.” This means that even if you surrender your policy during the first contract year, you are guaranteed to receive a specified minimum amount. The minimum guaranteed surrender value is generally an amount less than the original premium deposit. For example, the insurance company might guarantee 90% of the initial premium amount plus accumulated interest.

Q. What options do I have for generating income payments from my fixed index annuity?

A. The two methods for generating income payments are “income riders” and “annuitization.”

Adding an income rider to your fixed index annuity will allow you to decide when you would like to begin receiving income payments for life. Generally, your income rider will grow at a rate specified in your contract (currently between 5-10% annually). This rate is often referred to as a “rollup rate.” Important to note is that income riders often come with an annual fee (usually between 0.50 and 1.00% annually).

The term “annuitization” refers to converting your fixed index annuity to an immediate annuity. This opens up a variety of payout options, such as income over a single lifetime, joint lifetime, or for a specified period of years. Many fixed index annuities permit you to annuitize your contract after the first contract year.

Q. What happens to my annuity if I die?

A. Most fixed index annuities offer your beneficiaries the option of withdrawing the full account value (death benefit) without any surrender fees. Additionally, some policies will allow beneficiaries to annuitize their lump sum. In other words, they can convert their lump sum into an immediate annuity. Before purchasing a fixed index annuity, be sure to explore the annuity’s death benefit features.

Q. Will I be charged any fees for this annuity?

A. Most fixed index annuities come free of any fees. However, if you add certain income or withdrawal riders an annual fee will be deducted from your interest credits. Be sure to review the expenses and fees described in the contract.

Q. How financially secure is the insurance company?

A. A company’s financial strength can be an indicator of its future reliability. Be sure to review each insurance company’s financial ratings (A.M. Best, S&P, Moody’s).

As you compare and contrast illustrations offered by various insurance companies, take into consideration each of the areas listed above when making your final decision.

Understanding contract terms as well as each annuity's advantages and disadvantages will enable you to make the best decision for your financial situation.

+Click To See Our Full List Of Fixed Index Annuities

FIXED INDEX ANNUITIES (in order of Surrender Fee Period)

November 30, 2016
Click Product Name
for more Information
Surrender
Fee Period
Premium
Bonus
Cap Rate AM Best
Rating
Click to
Midland National Life
MNL Index Builder 14 - High Annuity1 Year S&P 500 Annual Point-to-Point Index Cap Rate
14 yrs.10.00 %2.50 %A+
Midland National Life
MNL Index Builder 14 - Low Annuity1 Year S&P 500 Annual Point-to-Point Index Cap Rate
14 yrs.8.00 %2.50 %A+
EquiTrust Life
MarketTwelve Bonus Annuity2-Year Monthly Average Cap
14 yrs.6.00 %5.00 %B++
Fidelity & Guaranty Life
FG AccumulatorPlus 14 Annuity1 Year S&P 500 Monthly Average with Cap
14 yrs.5.00 %B++
Midland National Life
MNL IncomeVantage 14 Series 1 - High Annuity1-Year London Gold Market Fixing Price
14 yrs.4.25 %A+
Midland National Life
MNL IncomeVantage 14 Series 1 - Low Annuity1-Year London Gold Market Fixing Price
14 yrs.3.80 %A+
Fidelity & Guaranty Life
Prosperity Elite 14 Annuity1-Year Gold Point-to-Point with a Cap
14 yrs.3.50 %B++
Midland National Life
MNL Endeavor 12 Plus Annuity1-Year S&P 500 Inverse Performance Triggered
12 yrs.7.00 %2.50 %A+
Midland National Life
MNL Endeavor 12 Annuity1-Year Fixed Account
12 yrs.N/AA+

Fixed Index Vs. Variable Annuities

A question we often hear is, “What is the difference between a variable annuity and a fixed index annuity?” Simply put, there is a huge difference between the two, and understanding those differences is the key to understanding why the annuity products on this page may be a better choice for you in your financial situation.

Variable Annuity

The gains you may or may not accrue in a variable annuity are based on the performance of the underlying sub-accounts into which you allocated your premium. Sub-accounts are similar to mutual funds and usually reflect an investment strategy ranging from conservative to aggressive. It is important to understand that it is possible to lose your money in a variable annuity. Yes, your premium is at risk. If someone tells you that it is impossible to lose your money with a variable annuity they are misleading you.

Fixed Index Annuity

Fixed index annuities give you the opportunity to earn returns based on the performance of a benchmark stock index (e.g., S&P 500) without the risk of ever losing money in a year when the stock market declines. A fixed index annuity is governed by a rate floor and a rate cap making them a safer alternative to a variable annuity.

The index annuity rate floor ensures that no matter how poorly a stock index performs in a given year, you will not see a negative return. The rate cap allows insurance companies to offer this type of guarantee. The annual return on your annuity is capped, usually between 3 and 7 percent a year. The caps can be adjusted by the issuing insurance company each year.

Currently, a number of index annuity companies in our list (see above) offer you a premium bonus of up to 10 percent, when you sign up. This bonus immediately increases your initial account value. Index annuities charge surrender fees if you withdrawal the money early.

Need help with fixed index annuities? Before deciding which index annuity is right for you be sure to speak with one of our friendly annuity experts. Call tollfree 800-872-6684. We'll help you compare rates and income payout options as well as the strength of the issuing insurance company.

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Comments (24)

  1. Nelson:
    Feb 25, 2015 at 12:47 PM

    What is the difference between an index annuity and a variable annuity with a GLWB (Guaranteed Lifetime Withdrawal Benefit) rider? Are indexed annuities any safer, in terms of market downside loss?

  2. Hersh Stern:
    Feb 25, 2015 at 01:31 PM

    Hi Nelson-

    Index annuities are a conservative type of annuity when compared with variable annuities. This is because an index annuity cannot go down in value, even if the underlying benchmark index dropped by 50%! That’s because of an index annuity’s downside protection. On the other hand, I consider an index annuity a conservative investment due to a cap placed on how much interest you can earn in a given year, even when your benchmark stock index improves by 50! For example, your indexed annuity might have an annual point-to-point cap rate of 5.00%. This means that even if your index goes up 50% you only receive 5% interest that year. So index annuities have very little volatility compared to variable annuities.

    With variable annuities, you are directly invested in the market. The value of your annuity will go up and down. You don’t have caps on the upside, but you also don’t have any downside protection.

    Regarding the GLWB rider – these are treated vary similar in both index and variable annuities. They’re designed to guarantee a certain monthly income for life, independent of the performance of the markets.

    I hope I've answered your questions to your satisfaction.

    Hersh

  3. Sheila:
    Mar 13, 2015 at 01:00 PM

    I am about 8 years from retirement and have been researching index annuities with income riders. Is it better to look at annuities with a shorter duration (5-7 years), or take a longer term annuity for 12-14 years?

  4. Hersh Stern:
    Mar 13, 2015 at 01:37 PM

    Hi Sheila-

    By “duration” I’m assuming you mean the length of the surrender fee period. An important reason for selecting an annuity with a shorter surrender period would be that you contemplate exchanging your first annuity for a different insurance company’s annuity when there are no more surrender fees.

    Since you plan to withdraw a lifetime income from your annuity, you may want the flexibility to “annuitize” with the company that pays you the most at the time you start to withdraw income.

    On the other hand, if you are sure you are going to exercise the income rider of an indexed annuity, it might be better to select a longer-term annuity. Many indexed annuities with long surrender periods also pay you a premium bonus to sign up, which will increase the amount of income you can eventually withdraw.

    Hersh

  5. Edward:
    May 15, 2015 at 01:56 PM

    When I start the income rider on an index annuity does an exclusion ratio apply to my payments or is all the income taxed at once?

  6. Hersh Stern:
    May 15, 2015 at 01:59 PM

    Hi Edward-


    When you start withdrawals from an index annuity no exclusion ratio is applied to the income payments you receive even if the payments derive from the exercise of an income rider.

    The IRS considers all payments received from a non-qualified index annuity to be first a withdrawal of interest (earnings or gains) and only after all the interest is removed, then the balance is considered withdrawals of after-tax cost basis.

    The exclusion ratio treatment only applies to payments from immediate annuities or deferred income annuities.

    You can find additional information about immediate annuities here:

    https://www.immediateannuities.com/immediate-annuities/

    And deferred income annuities here:

    https://www.immediateannuities.com/deferred-income-annuities/

    Hersh

  7. Carmelita:
    May 28, 2015 at 01:20 PM

    Is an income rider good to attach to my annuity ? What is the benefit of having a rider?

  8. Hersh Stern:
    May 28, 2015 at 01:23 PM

    Hi Carmelita-

    You would consider adding an income rider to your indexed annuity if you wanted to generate a future lifetime income stream. If you have no intention of creating future lifetime income from your annuity, there might not be a reason to add the rider. This is especially true when an insurance company charges an annual fee to have the rider. Some companies may reduce your annual earnings by as much as 1.00% a year in exchange for the right to exercise a lifetime income rider down the road.

    If you’re certain that you’ll be withdrawing lifetime income payments from your annuity at a specific date or age, there may be more competitive options for you than an indexed annuity. For example, some deferred income annuities will guarantee a higher monthly payment than you can get from an index annuity.

    Hersh

  9. Corey:
    Jun 24, 2015 at 11:52 AM

    Does the Premium Bonus mean the rate of return I will receive as a bonus every year based on whatever the market does that year? For example, if the market increases 25%, and the premium bonus is 10%, do I now earn 10% of the 25% (i.e., 10% times 25%) which is a 2.5% bonus?

  10. Hersh Stern:
    Jun 24, 2015 at 11:53 AM

    Hi Corey-

    No! A premium bonus is a percentage credited to your annuity at the time you buy the annuity. It’s usually paid one time only. For example, if your annuity offers a 5% premium bonus and your premium is $100,000, your premium bonus will equal $5,000. Your premium bonus percentage has nothing to do with how future interest is credited.

    -Hersh

  11. W.:
    Jun 24, 2015 at 11:54 AM

    Does Cap rate mean the max I will earn annually?

  12. Hersh Stern:
    Jun 24, 2015 at 11:55 AM

    Hi W.-

    Yes. A cap rate is the maximum amount of interest that is credited to your annuity each year. For example, if you have an annual point-to-point cap rate of 5% and the S&P 500 goes up 10% that year, your annuity will be credited with 5% interest.

    -Hersh

  13. John:
    Jun 24, 2015 at 11:55 AM

    If the income rider is 6.5% for 10 years is that 6.5% of the final balance at the end of the surrender charge year or time of withdrawal?

  14. Hersh:
    Jun 24, 2015 at 11:57 AM

    Hi John-

    The income rider is arguably the most misunderstood element in an indexed annuity. The 6.5% you mentioned is probably the “roll-up” rate. For each year that you postpone withdrawing lifetime income, your “income account” value grows by 6.5%. Keep in mind that this 6.5% is not earned interest that you can withdraw in a lump sum. Your account’s cash value does not reflect this number. The income account value is only used in determining how much income you can withdraw when you elect to start receiving a lifetime income.

    -Hersh

  15. Jim:
    Jun 25, 2015 at 02:25 PM

    I am considering a fixed indexed annuity with 6.00% roll up. Is this rate really guaranteed? The salesman said there is a 0.95% rider fee. Is this a good idea?

  16. Hersh Stern:
    Jun 25, 2015 at 02:27 PM

    Hi Jim-

    It’s difficult to answer your question without knowing a lot more about your overall finances and retirement plan. So I invite you to call or email me to schedule a free, no obligation phone consultation.

    Regarding buying an index annuity for income, it will depend a lot on when you plan to start receiving income. If immediately, or within a year or two, it’s likely the indexed annuity will not offer you as much income as an immediate or deferred income annuity would.

    You can read more about immediate annuities here:

    https://www.immediateannuities.com/immediate-annuities/

    and deferred income annuities here:

    https://www.immediateannuities.com/deferred-income-annuities/

    It’s also important to know that a “roll-up” rate is not an interest rate and that your annuity stops “rolling up” as soon as you begin to withdraw income.

    -Hersh

  17. Linda:
    Jul 28, 2015 at 02:49 PM

    In general a lot of people think that a variable or indexed annuity is a bad idea. Do you concur?

  18. Hersh Stern:
    Jul 28, 2015 at 02:51 PM

    Hi Linda-

    Our company doesn’t “push” index annuities (like some of the tv commercials promising 10% gains do). Rather if an annuity is called for we can review any type of fixed annuity with you. And, we do have many customers who’ve bought index annuities through our service.

    Sometimes index annuities get panned because of the high commissions agents earn from an FIA sale. We’re quite transparent when it comes to commission disclosures vis a vis index and other types of annuities. Have a look here:

    https://www.immediateannuities.com/annuity-commissions/

    In fact, we link to this page in the navigation pull down bar at the top of every page in our site! Click the “News” tab and click “annuity commission.”

    If you’d like to discuss index annuities with me please call. I will compare FIAs with deferred income annuities to show you which offers a better solution for your situation. I’m really agnostic about either type because I sell both. Often the index-annuity-pushing agents like JD Mellberg only market the one type of high commission annuity and then bad-mouth the other types. I offer a “fair and balanced” approach to this question.

    Hersh

  19. Scott:
    Jan 07, 2016 at 12:08 PM

    Is there an annuity that you can make monthly payments to?

  20. Hersh Stern:
    Jan 07, 2016 at 12:09 PM

    Hi Scott -

    YES. That kind of annuity is called a flexible premium annuity (as compared to a single premium annuity). Many popular categories of annuities are available both as single and/or flexible premium contracts. These include Deferred Income Annuities (DIA) and Fixed Index Annuities (FIA). However, neither immediate annuities nor multiyear guaranty deferred annuities accept multiple deposits.

    Hersh

  21. Chris:
    Jan 11, 2016 at 08:21 AM

    Am I wasting my time thinking that a FIA is the simple answer to my question about getting an investment option that protects my principal, gives me a guaranteed monthly income(fixed or potential to grow more than the guaranteed amount) and is transferable to my wife or children upon my demise?

  22. Hersh Stern:
    Jan 11, 2016 at 09:47 AM

    Hi Chris-

    From your description of how a FIA works I wonder if an agent explained FIAs incorrectly to you or that you misunderstood what you heard (or read). For an annuity to both provide you with a monthly income and a death benefit of your full original principal paid to your beneficiaries, that annuity would not be able to distribute to you each month more than it earned that month.

    I’ll give you an example: Say you invested $100,000 in an annuity which paid you 3% interest a year. The annual interest would be $3,000. If that interest was paid to you monthly you’d get $250 each month (approximately, because the monthly interest and annual interest are calculated differently, but that’s a separate conversation).

    Notice, if you started with a $100,000 account balance and earned $250 in interest during the month and then withdrew $250 at the end of the month, your account balance at the beginning of the second month would again be $100,000. In this situation, you would be preserving the principal all the time for your beneficiaries and on your death the insurance company could pay them $100,000. But while you were living you could draw down more than the amount of interest you earned each month.

    There is an annuity that does what I just described. It’s called a multiyear deferred annuity or MYGA, for short. The interest rates on MYGAs these days are around 3% for a 10 year contract.

    Now you may have read claims or seen advertisements for FIAs which promised 6% or even 8% withdrawals. Those may exist, BUT.... NOT while preserving the full principal for your beneficiaries. That would be like burning the candle at both ends and expecting the candle to not get any shorter!

    You may have also read that with a FIA your account balance will never lose value due to a drop in the stock market. That’s generally true. But your annuity *WILL* begin to lose value just as soon as you start withdrawing your monthly income payments from it.

    To reiterate, if you are looking to purchase an annuity that retains your full principal while paying you some income, it will have to be an annuity where you’re only drawing down the amount of interest the annuity earned that month. Such a MYGA contract will generate less in monthly income than an annuity that pays you some principal plus interest each month, which you can get from an immediate annuity or an FIA.

    So you’ll need to choose which goal is more important – generating a maximum lifetime income for you and your spouse or preserving your entire principal to pass on to your beneficiaries.

    Hersh

  23. John:
    Feb 24, 2016 at 02:20 PM

    If I want lifetime income in the future should I invest in an index annuity or an index fund. Your thoughts?

  24. Hersh Stern:
    Feb 24, 2016 at 02:21 PM

    Hi John-

    You asked a rather complex question that has many facets. I suggest you consult with a fee-only financial planner to review your retirement goals, etc.

    Very briefly, purchasing a fixed index annuity will definitely protect you from any downside risk during the term of the annuity. On the flip side, your gains will be “capped,” so a fixed index annuity will never not have the growth potential of an index fund. A fixed index annuity should be considered a conservative investment, similar to a multi-year guaranty deferred annuity. Most of our clients who buy FIAs want to completely eliminate their downside risk while earning a conservative tax-deferred interest rate.

    Hersh