Why Fixed Indexed Annuities Still Shine—Even When Interest Rates Fall
Fixed Indexed Annuities (FIAs) remain attractive when interest rates fall because they offer principal protection, market-linked growth potential, and guaranteed* income that does not depend on short-term interest rate movements.
When interest rates decline, interest rates on traditional savings vehicles such as bank CDs, and money market accounts often fall as well — making it harder for retirees and pre-retirees to generate dependable income. FIAs are specifically designed to address that challenge. (Bank products are secured by the FDIC, while annuity benefits are guaranteed by the issuing insurer.)
What Is a Fixed Indexed Annuity (FIA)?
A Fixed Indexed Annuity is an insurance product that can provide principal protection, growth tied to the performance of a specified market index, and guaranteed lifetime income during retirement.
Unlike direct market investments, FIAs protect your original premium from market losses while allowing interest growth based on the performance of an external index, such as the S&P 500® (without investing directly in the market).
They’re designed to help you grow your retirement monies without exposing them to market losses. Even when interest rates fall, FIAs still offer compelling benefits:
- Principal protection: Your original premium is shielded from market downturns.
- Growth potential: Interest is credited based on the performance of a market index, offering more upside than traditional fixed annuities.
- Tax-deferred growth: You don’t pay taxes on your earnings until you withdraw them.
- Customizable features: You can often tailor your FIA with options like a lifetime income rider, which guarantees a steady paycheck for life, even if your annuity runs out of money. The lifetime income rider is available on many products for an additional charge.
Key Features of FIAs vs. Other Options:
Feature |
FIA |
Bank CD |
Bonds |
|---|---|---|---|
| Principal protection |  |
|
|
| Market-linked growth | |
|
|
| Tax-deferred growth | |
|
|
| Lifetime income rider option | |
||
| Backed by | Issuing company | Federal Deposit Insurance Corporation (FDIC) | Issuing company/entity only |
How Can an FIA Help in a Low-Interest-Rate Environment?
FIAs are designed to function across changing interest-rate environments by offering a combination of protection, growth potential, and the ability to plan for future income.
Protection and Growth That Aren’t Tied to Short-Term Rates
Unlike CDs or money market accounts, whose returns are closely tied to prevailing interest rates, FIAs credit interest based on the performance of an external market index—subject to caps (the maximum interest that can be credited), participation rates (the percentage of index gains that are credited), or spreads (an amount subtracted from index gains) — or a combination of all three.
This means that even when interest rates decline, an FIA can still provide the opportunity for interest credits without exposing the contract owner to market losses. Interest earned is typically locked in annually and cannot be lost due to future market downturns.
A Different Value Proposition Than Other Conservative Options
When interest rates fall:- New CD rates are often reduced
- Money market yields typically decline
- Bonds may face price volatility as rates change
FIAs are structured differently. Rather than relying on fixed interest payments or market pricing, they offer principal protection with growth potential linked to market performance.
While FIAs are not designed to replace all conservative investments, they can serve as a complementary option for individuals seeking protection from loss with the opportunity for growth during uncertain rate environments.
As with any financial product, FIAs involve trade-offs, including caps on credited interest and surrender periods, which should be evaluated alongside other options.
Income Planning Flexibility—When and If It’s Needed
Many FIAs offer the ability to convert a portion of the contract into guaranteed* lifetime income later in retirement through optional features elected at issue. Income growth may be tied to market performance or may grow at a predetermined rate, depending on the product design.
Because this income is not based on short-term fixed interest rates, it can provide greater predictability when planning for retirement income across changing rate environments.
Linda’s Story (Hypothetical)
How an FIA May Help in Retirement
Linda is 62 and planning to retire at age 65. As she gets closer to retirement, her priorities are clear: protect her savings, avoid market losses, and still have the opportunity for growth in a low-interest-rate environment.
She allocates $150,000 to a fixed indexed annuity with a 10-year term. At the time, bank CDs are averaging around 3% annually. Rather than locking in a fixed rate, Linda chooses an FIA that credits interest based on the performance of a market index—while protecting her principal from market downturns.
The annuity includes an interest rate cap, which is the maximum amount of interest that can be credited during a given year, even if the index performs above that level. In the first contract year, the index performs well and reaches the cap, allowing Linda to earn interest that is locked in and cannot be lost in future market declines.
If market performance is lower in other years, Linda does not earn index-linked interest, but her principal remains protected.
As Linda moves into retirement, she later elects to turn on guaranteed* lifetime income to supplement Social Security. Because this income is not based on short-term fixed interest rates, it helps her plan with greater predictability during retirement.
Key Takeaways
FIAs are built to perform even in falling-rate environments
They combine principal protection, growth potential, and guaranteed* income
Their stability does not depend on short-term interest rates
They can offer strong value compared to other conservative options
The Bottom Line
No one can predict where interest rates will go next — but you can choose a strategy designed to perform across changing rate environments.
FIAs provide protection, growth potential, and predictable income that can strengthen retirement confidence –even as interest rates change.
Talk with your financial professional today
Learn how an FIA might help protect and grow your retirement funds.
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* Guarantees rely on the financial strength and claims-paying ability of the issuing insurer.
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