Fixed and Indexed Annuities: What is the Difference?

Fixed Annuities and Indexed Annuities (aka: Fixed Index Annuities - FIAs) are both classified as life insurance products, both fixed annuities, and both regulated at the state level.  In addition, both strategies were designed to produce CD type returns.  In the case of Indexed Annuities, those are mistakenly over-hyped as market return products but are just enhanced CDs (aka: Certificates of Deposit).  Fixed Annuities are also referred to as Multi-Year Guarantee Annuities (MYGAs).

The primary difference between Fixed and Indexed Annuities is how the interest is calculated annually.  With Fixed Annuities (aka: MYGAs), they are the annuity industry's version of a CD.  You received a contractually guaranteed annual interest rate for a specific period of time that you choose.  With Indexed Annuities (FIAs), the interest earned is attached to a call option on an index (like the S&P 500).  The upside is limited with contractual "caps" and "spreads" within that policy.  In addition, the index used does not include dividends which typically represent over 50% of the S&P 500 annual historical returns.

In English, Fixed Annuity (MYGA) returns are contractually guaranteed and Indexed Annuities (FIAs) are not.  The reason people might choose FIAs would be the potential to get a little higher than CD returns.  The bottom line is that both fully protect your principal regardless of market volatility.

Contact Stan The Annuity Man if you want to see the best Fixed Annuity rates or Indexed Annuity quotes.  You can also receive Stan's 6 published Annuity Owner's Manuals for free and under no obligation, and have access to the top Annuity Calculator available to consumers.

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