What Is a Deferred Fixed Annuity?

Deferred fixed annuities are relatively simple products. 

Deferred fixed annuities, which also go by the name "fixed annuities," have growth potential by accumulating or growing at a fixed rate over several years. And this growth occurs on a tax-deferred basis. This means that taxes are due only upon withdrawal. 

A fixed annuity is an insurance product purchased from an insurer; the funds are held during the accumulation or deferral period by an insurance company that guarantees the principal.⁽¹⁾ The accumulation or deferral period is the length of time you allow your funds to grow before starting to take income from the annuity.

Can you access your money in a fixed annuity? Typically, you’ll be able to access 10% of the annuity value during the annuity’s early years. Any more than that and you may be pay surrender penalties which typically decrease to zero over time, usually between 5-10 years. And since annuities are long-term products, any withdrawals are subject to ordinary income taxes and may also be subject to a 10% federal penalty before age 59½ .

What options do you have at the end of the fixed annuity’s surrender penalty period? You can choose to:

• Annuitize, turning the savings into a guaranteed income stream
• Leave the money to continue growing at the interest rate established by the company
• Withdraw a portion or all of the money 
• Roll the annuity into a new fixed annuity, if appropriate⁽²⁾ 

You’ll know the fixed annuity’s initial interest rate right up front before you purchase the annuity from an insurer, and the insurer guarantees your money to grow at this rate during the guarantee period. After the guarantee period, the rate could change.

What determines the interest rate on a fixed annuity?

• Amount of your premium payment
• The length of the interest rate guarantee period
• Insurer’s credit rating
• General market and interest rate environment at the time of purchase