When considering retirement planning, it’s important to find a strategy that best fits your life—for today and in tomorrow.
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:
The difference between fixed and fixed indexed annuities How the risk levels compare How the rates of return compare A comparison chart at-a-glance

What's the difference between fixed & indexed annuities?
The main differences between a fixed annuity and a fixed index annuity are the risk levels and how interest is calculated.
- 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 returns 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 grow tax-deferred meaning that your tax liability will happen
once withdrawals begin .
- 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, at the same time, your annuity value is protected from any losses due to 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 even in a volatile market, and if the index your annuity is tied to doesn’t perform well, your annuity doesn’t lose its value.
Here’s a look at the key differences between these two types of annuities in more detail.
Fixed annuities are considered lower risk than fixed indexed annuities
Fixed annuities have a guaranteed minimum interest rate so you will receive some interest each year. A fixed indexed 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 the lowest risk annuity
Fixed annuities may tend to pose less financial risk than other types of annuities and other investment products whose values rise and fall with the market. The predictable, guaranteed interest is one of the most attractive features of a fixed annuity. The return you earn isn't affected by market fluctuations, and the insurance company offering the product takes on all the investment risk.
As with most annuities, if you want to withdraw money from your fixed annuity earlier than scheduled, you’ll likely incur a penalty charge—which sometimes can be hefty. In some cases (depending on when you make the withdrawal and how much you take out), it even can result in a loss of your annuity value.
Fixed indexed annuities have slightly more risk
The interest, if any, on a fixed indexed annuity is tied to an index. Since the interest is tied to a stock market index, the interest credited either will benefit or suffer based on market performance. They 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 have a steady rate of return while fixed indexed annuities have variable rates of return
The rate of return, the guarantees built in, is one of the most notable differences between fixed and fixed indexed annuities.
Fixed annuities guarantee a specific minimum rate of return, as well as a current rate of return declared by the insurance company
The minimum rate of return on fixed annuities may be lower than other types of annuities because of the guarantees built in. However, you trade potentially benefiting from market upswings and not keeping pace with inflation for the predictability.
Fixed indexed annuities interest is tied to the performance of a specified index
Fixed indexed annuities have the benefit of potentially offering a higher rate of interest when the index performs well, but principal protection when the index suffers losses. However, in exchange for this protection against losses, there may be a cap on the maximum interest you can receive. Or your return may be limited to a percentage (for example, 70%) of the index’s actual return rate.
Comparing fixed annuities & fixed indexed annuities
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Provide a minimum guaranteed interest rate for the life of your annuity contract. It typically also has a current interest rate 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 indexed account where interest is based on how the S&P 500® Index performs, subject to an annual cap. | |
Tax-deferred | Tax-deferred | |
Low risk | Low risk for principal protection, but interest credited fluctuates and may be 0%. | |
No | Yes | |
Value grows at a set interest rate. This protects against the risk of market losses. It also limits potential gains, even when the market is up. | Interest depends on index performance and can be both positively and negatively impacted. |
Which annuity should you choose?
In addition to understanding fixed annuity vs. fixed indexed annuity differences, there are a few other types of annuities you might want to explore before making a decision.
→ Read:
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.