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Fixed annuity vs. fixed index annuity: What's the difference?

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When considering retirement planning, it’s important to find a strategy that best fits your life—for today and in tomorrow. Annuities may help ensure you have the income you need to live the life you want after you retire.

While fixed and fixed index annuities sound similar, there are some key differences to sort through before deciding on the right one for you.

 In this article, we’ll cover:

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How does a fixed index annuity differ from a fixed annuity?

The main differences between a fixed annuity and a fixed index annuity are the risk levels and how interest is calculated.

A fixed annuity is an annuity contract designed for retirement income that guarantees a fixed interest rate for a specified period of time, such as 3%, regardless of market performance.

  • With a fixed interest rate, you know in advance how much your annuity will grow and how much income it will pay out. This predictability is particularly helpful for people with a conservative risk tolerance.
  • The earnings may come in fixed payments over a set number of years, fixed payments for the rest of your life or in a lump-sum payment.
  • Earnings will not be taxed until withdrawals begin.

A fixed index annuity (FIA) is a type of annuity contract designed to create a steady retirement income and allow your assets to grow tax-deferred.

  • All or some of the interest is linked to a market index, such as the S&P 500, the Nasdaq 100 or the Dow Jones Industrial Average, subject to a cap. This creates the potential for more growth if the index performs well—and conversely offers protection from loss due to poor index performance.
  • Although your annuity’s interest is tied to the index's performance, your money is not directly invested in the market. This means that if the index your annuity is tied to doesn’t perform well, your annuity doesn’t lose its value due to market volatility.

Here’s a look at the key differences between these two types of annuities in more detail.

Fixed annuities are considered a lower risk than fixed index annuities

Fixed annuities have a guaranteed minimum interest rate so you will receive some interest each year. A fixed index annuity has an interest feature tied to a specified index, but subject to a cap. If the index has negative performance, you will receive no interest that year.

Fixed annuities are considered a lower risk annuity

Fixed annuities may tend to pose less financial risk than other types of annuities and investment products whose values rise and fall with the market. The predictable, guaranteed interest rate is one of the most attractive features of a fixed annuity. And with certain types of fixed annuities, like a multi-year guarantee annuity, or MYGA, that fixed interest rate can be locked in through the entire contract term. The interest earned in a fixed annuity isn't affected by market fluctuations for the duration of the fixed period.

As with most annuities, if you want to withdraw money from your fixed annuity earlier than scheduled, you’ll likely incur a penalty, or surrender charge—which sometimes can be hefty. Depending on when you make the withdrawal and how much you take out, the penalty may even result in a loss of value in your annuity. In addition, withdrawals made prior to age 59 ½ may be subject to a 10 percent federal tax penalty based on the fact the annuity is tax-deferred.

Fixed index annuities have slightly more risk

The interest, if any, on a fixed index annuity is tied to an index. Since the interest is tied to a stock market index, the interest credited will either benefit or suffer, based on market performance. A fixed index annuity can be an attractive option when you want to balance growth and stability in your retirement portfolio.

Like a fixed annuity, fixed index annuities are not particularly liquid investments. If you need to withdraw funds earlier than the annuity’s specified time frame you may face surrender charges as high as 10%.

Fixed annuities offer a fixed interest rate while fixed index annuities offer variable rates

The fixed interest rate, the built-in guarantee, is one of the most notable differences between fixed and fixed index annuities.

Fixed annuities guarantee a specific interest rate for a specified period, never to fall below the guaranteed minimum interest rate

The minimum guaranteed interest rate on a fixed annuity may be lower than other types of annuities. You are trading potentially benefiting from market upswings and/or not keeping pace with inflation.

Fixed index annuity interest is tied to the performance of a specific index

Fixed index annuities have the benefit of potentially offering a higher guaranteed interest rate when an index performs well, and principal protection when the index suffers losses. In exchange for this protection against losses, there may be a cap on the maximum earnings you can receive, or your earnings may be limited to a percentage (for example, 70%) of the index’s adjusted value.

Comparing fixed annuities & fixed index annuities

Fixed annuity
Fixed index annuity
How it works
Provide a minimum guaranteed interest rate for the life of your annuity contract or for specified periods of time (MYGAs). It typically also has a current interest rate as declared by the insurance company.
Interest, if any, is tied to a specified index, up to an annual cap. For example, a product could have an index account where interest is based on how the S&P 500® Index performs, subject to an annual cap.
Taxation on growth
Risk/principal protection
Lower risk
Lower risk for principal protection, but interest credited fluctuates and may even drop to 0%.
Tied to index performance?
Value grows at a set interest rate. This feature protects against the risk of market losses. However, it also limits potential gains, even when the market is up.
Interest earned is dependent upon index performance which can be both positively and negatively impacted.

Which annuity should you choose?

In addition to understanding fixed annuity vs. fixed index annuity differences, there are a few other types of annuities you might want to explore before making a decision.

→ Read: 4 types of annuities: Which is right for you?

Ultimately, the type of annuity most appropriate for you will depend on your investment strategy and risk tolerance. With so many different annuities available on the market today, there is sure to be an option that can help you achieve your financial goals. Connect with a financial advisor to get help evaluating all the different annuity types and selecting an annuity best suited to your needs. They also can help with comprehensive retirement planning, including setting goals, creating savings strategies and navigating the different investment options available.


This webpage provides general annuities information. It does not contain information specific to a Thrivent financial product. If you are looking for information specific to a Thrivent financial product or your existing annuity contract, please log in and refer to your contract or prospectus document—or visit our annuities product webpage.

Annuities are intended to be long term, particularly for retirement. Product availability and features may vary by state.

Withdrawals and surrenders will decrease the value of your annuity and, subsequently, the income you receive. Any withdrawals in excess of 10% may be subject to a surrender charge. The taxable portion of each annuity distribution is subject to income taxation. If a taxpayer is younger than 59½ at the time of distribution, a 10% federal tax penalty will apply to the taxable portion of the distribution unless a penalty-tax exception applies.

Guarantees based on the financial strength and claims paying ability of Thrivent.

Holding an annuity inside a tax-qualified plan does not provide any additional tax benefits. Thrivent and its financial professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

*A MYGA MVA is a Multi-Year Guaranteed Annuity with market value adjustments (MVAs). MVA adjustments are applied to amounts subject to surrender charges. This can be a positive adjustment, or a negative adjustment which would reduce the annuity’s value.