A fixed index annuity (FIA) is an insurance contract that lets your money grow based on a stock market index (like the S&P 500) without ever losing money when the market drops.
It's not a stock. It's not a mutual fund. It's an insurance product with a floor of zero.
CD vs MYGA, after tax
What $100,000 earns in 5 years: CD vs MYGA, after tax
Rates used: CD 4.50%, the top nationally available 5-year CD (DepositAccounts, September 24, 2026); change it to the rate you are offered. MYGA 5.95%, the best A-rated rate we track as of October 13, 2026: Delaware Life Pinnacle Plus 5-year (AM Best A-, negative outlook, 7/31/2026), $100,000 and up, effective October 6, 2026 (Delaware Life rate sheet).
| CD, interest taxed every year | $118,826 |
|---|---|
| MYGA, tax-deferred, before tax | $133,507 |
| MYGA after paying tax on all the interest at withdrawal | $126,136 |
| Tax deferral alone adds about | $674 |
| MYGA ahead of the CD, after tax | $7,310 |
Assumes 22% federal and 0% state income tax, no withdrawals, rates held for the whole term. MYGA interest is taxed as ordinary income when you withdraw it, not as capital gains. Gains taken before age 59 1/2 can owe a 10% IRS penalty, and cashing out early can cost a surrender charge. In an IRA both grow tax-deferred, so the edge there is the rate alone. Bank and credit union deposits are FDIC or NCUA insured up to the limits; a MYGA is backed by the issuing insurer's claims-paying ability and your state's guaranty association up to its limits, not the FDIC. General education, not tax, legal or financial advice.
How It Works: Simply
- You deposit money with an insurance company
- Your account is credited interest based on how a market index performs
- If the index goes up, you earn a portion of the gain (subject to a cap or participation rate)
- If the index goes down, you earn zero for that period, but you never lose principal
- Gains are locked in annually and become your new floor
Caps, Spreads, and Participation Rates
The insurance company limits your upside in exchange for protecting your downside. The three main methods:
| Method | How It Works | Example |
|---|---|---|
| Cap Rate | Maximum you can earn in a period | S&P gains 14%, your cap is 9% → you earn 9% |
| Participation Rate | Percentage of index gain you receive | S&P gains 14%, participation is 60% → you earn 8.4% |
| Spread | Index gain minus a fixed percentage | S&P gains 14%, spread is 3% → you earn 11% |
Rates expire like milk.
The best MYGA, CD and savings rates change every few weeks. Get a short email when a rate on this page changes.
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Who Should Consider an FIA?
- Retirees within 5-10 years of retirement who can't afford a major market loss
- People who want guaranteed lifetime income through an optional income rider
- Conservative investors who are earning near-zero in CDs or money market accounts
- Anyone with "safe money": the portion of your portfolio you can't afford to lose
Who Should NOT Get an FIA?
- Young investors with 20+ years to retirement: you need market growth
- Anyone who needs liquidity: surrender charges apply for 5-10 years
- People chasing maximum returns: FIAs are for protection, not aggressive growth
Common Misconceptions
"It's too good to be true"
It's not. You're trading maximum upside for downside protection. Over a 20-year period, an FIA will likely underperform a pure S&P 500 investment. But it will never have a year where you lose 38% of your retirement savings.
"They're all bad"
Some FIAs have excessive fees and complicated riders. Others are straightforward and competitive. The difference is in the specific product and how it's used within your overall plan.
"I'm invested in the stock market"
You're not. Your money is in the insurance company's general account. The index is just used as a measuring stick for how much interest you're credited.
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Hans Goldstein
Hans Goldstein · Retirement & income planning
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