The Best Fixed Annuity Rates in May 2024 | Rates Up to 6.55% 

Annuities are financial products issued by life insurance companies. Their purpose is to help you accumulate and receive retirement income. There are a few different types of annuities, but for this discussion on annuity rates, we will focus on fixed annuities—specifically multi-year guaranteed annuities (MYGA).

In this post, you'll learn the current best market rates, what determines annuity rates, and how to shop around for the best rates. Right now could be an amazing time to own a fixed deferred annuity.

Today, annuity interest rates are likely higher than interest rates for traditional bank products, like savings accounts and CDs. Further, the insurer guarantees these fixed annuity rates, which come in handy during times of stock market volatility, where nothing is guaranteed!

The following is a list of the best current average fixed annuity rates for May 2024.

Only companies with an AM Best Rating of B++ (good) or better are listed here. It is important to note that some online annuity rate informational sites require the insurance company to pay a fee to be included in the review, meaning those pages may not accurately reflect the actual best rates.

Best 3 Year Guaranteed Rates

*Atlantic Coast Life offers a base rate of 5.67% credited annually with a bonus of 1.00% in the first year, which produces an effective rate of 6.00% if held for the full investment term.

**American Life offers a base rate of 5.50% credited annually with a bonus of .45% in the final year, which produces an effective rate of 5.65% if held for the full investment term.

Best 5 Year Guaranteed Rates

*American Life offers a base rate of 5.70% credited annually with a bonus of 0.60% in the first year, which produces an effective rate of 5.82% if held for the full investment term.

Notes: Among the top rates, Canvas Annuity is the only company that enables you to take withdrawals and buy directly with no commissions paid. State availability will vary.

The 5 year Canvas Future Fund MYGA currently has a rate that’s among the highest in the market PLUS it has several features not included on policies with slightly higher rates.

Some of those features include:

• Canvas allows you to access up to 10% of the value of our annuity without penalty each year. This is an important feature that enables you to cover emergency repair costs, health care needs, or just pay for a relaxing vacation. The annuities on the list with higher rates do not allow any access to your money during the term of the annuity without incurring surrender charges.
• Canvas values your time and allows you to purchase our annuities 100% online in minutes or speak with one of our friendly licensed representatives at a time convenient for you. The annuities on the list with higher rates do not allow you to make your annuity purchase online. You must purchase through an agent.
• Canvas is a simple-to-understand product that does NOT have an MVA feature. With an MVA you can lose money if treasury rates are higher when you surrender the annuity than when you purchase. Plus, an MVA can be very complicated.
• The Canvas rate is very competitive. The small difference in rate will not significantly impact the growth of your money over the 5 year guarantee period. But not having all of the features you deserve could have a major impact on how quickly you can save for your retirement.

Best 7 Year Guaranteed Rates

*Atlantic Coast Life offers a 5.45% credited annually with a bonus of 1.00% in the first year, which produces an effective rate of 5.59% if held for the full investment term.

Notes: Among the top rates, Canvas Annuity is the only company that enables you to take withdrawals and buy directly with no commissions paid. State availability will vary.

Major Life Insurance Companies May Not Offer the Best Rates

Companies that do a lot of national advertising don’t necessarily have the best rates.

An annuity with an MVA feature means that if the insurance company incurs losses or gains by liquidating its bonds before maturity, it can pass some (or all) of the losses or gains to you. This only occurs if you withdraw more money than the allowed “penalty-free withdrawals” during the surrender charge period.

How to Compare Annuity Rates

When comparing interest rates credited on fixed annuities, there are several elements to consider:

• The Rate – This is the interest rate that the company will guarantee to be paid each year on your accumulated balance.
• Guarantee Period – The length of time that the rate is guaranteed to be paid (typically 3, 5 or 7 years)
• Surrender Charge – Ensure that you understand both surrender charge percentages and the length of time the surrender charge is enforced by the insurer. Annual “free” Withdrawals – Some companies allow you to withdraw up to 10% of your balance each year without surrender charge penalty.
• MVA Products – Some companies add an “MVA,” or market value adjustment factor that will apply if you surrender the contract earlier than the surrender charge period. This factor can be a detriment or benefit depending on the direction of interest rates, but can unnecessarily add complexity to the product.
• Company financial strength ratings – Be careful to choose companies that are rated “Good” or better by rating agencies like AM Best So while the rate offered is the primary factor when making a decision to buy an annuity, be sure to understand these other components as well and ask questions to better understand what you are buying.

How Are Annuity Rates Set?

Fixed annuity rates are set by the insurance company.

Insurance companies take annuity deposits in and invest the money, generally in the bond markets. They make money on the difference between the rate they receive as an investor and the credited rate they provide to you (the spread).

When bond market rates are doing well, generally they can offer a higher rate to you.

Product bells and whistles can add or subtract from the rate offered to you.

What is a Fixed Annuity?

Fixed annuities come in two flavors: deferred and immediate. Deferred annuities, like the ones reflected in the rates above, help you safely accumulate money before retirement. Immediate annuities help you safely distribute money once in retirement, and they can help ensure that you don’t run out of funds.

Fixed Deferred Annuities

A fixed deferred annuity is, in some ways, like a bank certificate of deposit (CD).

Just like a CD, when you purchase a deferred fixed annuity, the insurance company tells you the guaranteed minimum interest rate that your deposit will earn. The primary difference is that the tax due on interest earned on fixed annuities is deferred until you withdraw the money. With CDs, you must declare all yearly gains to the IRS. Gains are taxable in the year they’re earned. We will get into other differences between these two products in a minute.

But suffice it to say that, generally, fixed deferred annuities offer significantly higher rates than CDs in August 2023. With fixed deferred annuities, the insurance company pays you a guaranteed fixed rate for the term you choose, usually three, five, or seven years. State regulators set a minimum interest rate, and the minimum interest rate cannot be lower than what state regulators prescribe. In most cases, the minimum is set at or above 1% per year.

During your initial rate guarantee period, you may receive a higher guaranteed crediting rate. When that period is over, if you keep your money in the annuity, the insurance company will declare a new crediting rate but the new rate can never be less than the minimum guaranteed crediting rate shown in your contract Initial guaranteed crediting rates are usually much higher than the state minimum, due in part to the insurer's ability to invest your money, make a profit spread, and pay you an attractive return.

Several national rating organizations keep an eye on insurers and their ability to support annuities and other financial obligations. These organizations do not make recommendations for a particular annuity product.

Instead, they assess the insurance company’s financial strength. Generally, it’s best to buy annuities from companies with “good” or better ratings from the rating agencies. During the surrender period, some insurers offer penalty-free withdrawals of 10% or more each year. This allows the annuity holder to make partial withdrawals before the surrender period ends without incurring fees. If you're interested in an annuity, but you want higher rates than fixed annuities can offer, fixed-indexed or variable annuities might be right for you.

Just note that these annuities come with significantly more risk than fixed annuities. For investors looking for a more conservative option to add to a diverse retirement portfolio, who will not need the interest income from their purchase until age 59½ or later, fixed annuities are an attractive option.

Fixed Immediate Annuities

Annuities are risk management tools issued by insurance companies. When you buy a fixed immediate annuity, you pass money along to the insurance company where it grows with interest. In return, you receive a certain amount of money back each month. This money is guaranteed income, and you receive it for a particular period of time that you specify. The “fixed” attribute refers to the fact that the rate is fixed at the issue of the policy and will not change for your lifetime.

When you purchase an immediate annuity, you enter into a contract with an insurance company. This annuity contract allows you to receive a guaranteed stream of lifetime income. Many people buy a fixed deferred annuity, and later, they “annuitize” the product, turning it into a stream of income by converting the deferred annuity into an immediate, or income annuity.

The insurance company calculates the amount of monthly income they can provide based on several factors, including:

• The type of annuity (fixed, variable, or fixed-indexed)
• The term of the annuity that you choose (life-only, joint life, term-certain)
• Your age and gender (to estimate life expectancy)

Annuity Features and Impact on Fixed Annuity Rates

With fixed annuities, some insurance companies offer you a handful of features and options.

These options (sometimes known as riders) can impact your rate positively or negatively. One feature, known as a return of premium rider, gives you the ability to cancel your policy and get back your initial lump sum deposit at any time, for any reason. Annuity rates are generally lower if you have the return of premium feature because there’s a higher risk to the insurance company that you might remove your funds.

Another rider is known as a market value adjustment, or MVA. The MVA only comes into play if you withdraw your money prior to the end of the surrender charge period. MVAs can have a positive or negative impact on the value of the annuity. As we discussed, the surrender charge period, penalty-free withdrawal options, and surrender charge schedule are common across all fixed annuities.

The surrender charge period is the number of years you must keep your money in the annuity. Depending on the contract you may be able to withdraw your interest or a percentage of the accumulated account value each year, tax penalty free. This is the penalty-free withdrawal feature.

If you withdraw more than the allowed amount, you will incur a surrender charge. The surrender charge schedule refers to the penalty percentages, identified by year. For instance, a 5-year multi-year guaranteed product (MYGA) period, may have a 5-year surrender period. The surrender schedule may start with a charge of 9% in the first year and lower by 1% each year.

However, most insurance companies typically give you some leeway with access to your money during the surrender charge period, as seen with the penalty-free withdrawal feature.

In addition, for annuities that renew into a new surrender charge period after the first ends insurers usually offer a 30-day window to withdraw your money or transfer your money to another product without penalty.

Surrender charges and penalties are similar to those charged by banks on CDs.

Annuity Costs and Fees

Fixed annuities do have some fees associated with them. We already mentioned the surrender charge fees. However, it’s important to note that if you don’t access more than the penalty-free amount, you won’t incur any surrender charges. It’s only when you exceed your allotted penalty-free withdrawal that you pay fees.

That’s why it's essential to only deposit money in a fixed annuity that you likely will not need for the duration of the guaranteed rate period. That way, you won’t need to withdraw it, and you won’t incur any fees. Agent commissions are another cost that significantly impacts your annuity’s crediting rate.

If the issuing insurance company uses commissioned agents as their primary way to sell annuities, their annuity rates will likely be lower. They must reduce your annuity’s fixed rate to pay commissions and still make a profit.

Some companies, like Canvas Annuity, can offer a higher guaranteed interest rate because they do not pay their agents a commission. You can buy directly from the website, and if you need help, you can speak with a non-commissioned agent. There could be additional fees affiliated with indexed and variable annuities. Because of their relative complexity, it is a good idea to seek advice from a financial advisor before purchasing them.

But the beauty of a fixed annuity lies in its simplicity. That’s why it’s so easy to buy fixed annuities directly from an insurance company.

Annuities Vs. CDs

It’s easy to compare annuities to CDs in terms of product features and returns.

Banks and credit unions offer CDs. With a CD you receive a fixed rate of return for a specific period of time (three years, for example). CDs generally offer better rates than savings accounts, but lower rates than most fixed annuities.

Banks penalize you for withdrawing money from a CD early (similar to annuity surrender charges), but CD early withdrawal fees come in the form of an interest penalty, depending on the CD’s term length. Like fixed annuities, the account holder of a CD knows exactly how much the CD will have earned when it matures.

For a three-year CD, the account holder agrees not to touch the deposit for the term length. At the end of the term, the full interest is added to the deposit amount. The customer then has options.

They can either withdraw the entire amount as a lump sum, renew the CD, or change the CD. One important difference between fixed annuities and CDs is this: With a CD, you will pay taxes on the interest earned in the year it is earned.

Fixed annuities are tax-deferred retirement products, meaning you defer paying taxes on interest-rate gains until you withdraw the money, usually in retirement.

Ready to Buy a Fixed Annuity?

Fixed annuities are the easiest type of annuity to understand and buy. With a deferred annuity, you receive steady, tax-deferred earnings with a guaranteed interest rate. As mentioned earlier, these annuities are generally a better alternative to lower-yielding savings products, like savings accounts and CDs.

This is not only because their crediting rates are usually much higher, but the earnings are not taxable until they are distributed. As a retiree, or someone planning for retirement, fixed annuities can help you build peace of mind now and later. Fixed deferred annuities help now by providing you with a competitive rate and tax-deferred payments until distribution.

And, they help later if you annuitize your annuity by providing an income stream that can supplement your social security income! Remember that there are surrender charge fees that come with annuities, and if you buy from an agent, you may receive lower rates because of agent commissions.

Also, because you are locking in guaranteed rates of return, you may lose out on more robust gains that can come from other investment vehicles, like indexed annuities, variable annuities, mutual funds, stocks, or bonds. But, the key to a successful retirement plan is diversification, and a fixed annuity can play a part in this diverse mix of products.

If you're ready to see what a fixed annuity can do for you, visit Canvas Annuity today and see how much you can earn!

Citations

1. Fortune (Carey 2020) -- Fixed Annuity Details: What’s A Market Value Adjustment?

2. The Balance (Anspach 2020) -- What a Deferred Annuity Is and How It Works

3. The Balance (Anspach 2020) -- What to know before you buy an immediate annuity

4. The Balance (Edmondson 2021) -- Bank Certificates of Deposit vs. Brokered CDs