Education Center
Understanding Annuity Types
Not all annuities are the same. Understanding the key differences between fixed, indexed, and variable annuities may help you determine which — if any — could be appropriate for your retirement goals.
Type 01
Fixed Annuities & MYGAs
A fixed annuity credits a guaranteed interest rate to your account for a specified period. A Multi-Year Guaranteed Annuity (MYGA) is a type of fixed annuity that locks in a guaranteed rate for a set term — commonly 2 to 10 years — similar in structure to a bank CD but issued by an insurance company.
Because the interest rate is guaranteed and your principal is not invested in the market, fixed annuities and MYGAs may appeal to people who want predictable, guaranteed growth without market exposure. They are often used as alternatives to CDs or savings accounts for money that is earmarked for retirement.
Key Characteristics
| Interest rate | Guaranteed for the contract term |
| Market exposure | None — principal not invested in the market |
| Tax treatment | Tax-deferred growth; taxed as ordinary income on withdrawal |
| Liquidity | Typically allows 10% free withdrawal per year; surrender charges may apply to excess |
| Death benefit | Account value generally passes to named beneficiaries |
Type 02
Fixed Indexed Annuities (FIAs)
A fixed indexed annuity credits interest based in part on the performance of a market index — such as the S&P 500 — but your principal is not directly invested in the market. This means you do not participate in market losses due to index performance, but your upside may be limited by participation rates, caps, or spreads set by the insurance company.
FIAs are often described as offering upside potential with downside protection, though the extent of both depends on the specific contract terms and the insurance carrier. They may be appropriate for people who want more growth potential than a fixed annuity but are not comfortable with the full market risk of a variable annuity.
Key Characteristics
| Interest crediting | Linked to a market index; subject to caps, participation rates, or spreads |
| Market exposure | No direct market investment; principal protected from index losses |
| Tax treatment | Tax-deferred growth; taxed as ordinary income on withdrawal |
| Liquidity | Typically allows 10% free withdrawal per year; surrender charges may apply to excess |
| Optional riders | Income riders, enhanced death benefits (may have additional cost) |
Type 03
Variable Annuities
A variable annuity invests your premium in sub-accounts that function similarly to mutual funds. Your account value fluctuates with market performance — meaning you can gain more in strong markets, but you can also lose principal in down markets.
Variable annuities are regulated as securities and are sold by licensed securities representatives. They are not the focus of this website, but it is important to understand the distinction: unlike fixed and fixed indexed annuities, variable annuities carry direct market risk to your principal.
Note: Annuity Info Shop focuses primarily on fixed annuities, MYGAs, and fixed indexed annuities. If you are interested in variable annuities, please consult a licensed securities representative.
Ready to Learn More?
Download our free 2026 Consumer Guide or schedule a no-cost Retirement Income Review.