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Why Fixed Indexed Annuities Still Shine—Even When Interest Rates Fall

If you follow the news, you’ve likely heard about the Federal Reserve adjusting interest rates. But what does that mean for your financial future—especially if you’re nearing retirement or have already retired? When rates drop, borrowing becomes cheaper, which can help stimulate the economy. Unfortunately for savers, it often means lower yields on bank CDs, bonds, and money market accounts—making it harder to find dependable returns. So, where can you turn for growth and income when rates go down? One option worth considering is a Fixed Indexed Annuity (FIA).

What Are FIAs?

FIAs are insurance products that blend principal protection, growth potential, and income guarantees.* 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.

FIAs Versus Other Options

 
Feature
FIA
Bank CD
Bonds
Principal protection CHECKMARK CHECKMARK
Market-linked growth CHECKMARK CHECKMARK
Tax-deferred growth CHECKMARK CHECKMARK
Lifetime income rider option CHECKMARK
Backed by Issuing company and State Guaranty Association Federal Deposit Insurance Corporation (FDIC) Issuing company/entity only
Although many key features are captured here, there are other factors to consider.

Linda’s Story: How FIAs May Help in Retirement

Let’s look at a hypothetical example with Linda, age 62, who wanted to protect her money while still earning a reasonable return as she approached retirement.
Two years ago, she placed $150,000 into a 10-year FIA and purchased an optional lifetime income rider. At the time, bank CDs paid around 3% annually. Linda’s FIA, linked to a well-known index, offered a cap rate of 10%, which is the maximum interest that could be earned. That FIA also had a guaranteed minimum interest rate of 1%, which is locked in on the annuity purchase anniversary. Crediting rates on FIAs, including both cap and minimum interest rate, may change from year to year, but Linda’s cap rate was guaranteed for the entire surrender charge period. At the end of the first year, the index reached its cap, and Linda earned 10% interest, far above what more conservative vehicles may have provided. Plus, her principal remained protected, and she locked in that gain permanently. Now, even if interest rates fall, Linda’s FIA provides a guaranteed monthly income. This “retirement paycheck” supplements her Social Security and helps Linda enjoy increased financial peace of mind.
Woman in her 60s taking a selfie with her significant other

FIAs in a Low-Rate Environment

Even if cap and participation rates decline slightly, FIAs may deliver better returns than most low-yield options, money market accounts, or traditional fixed annuities.

Here’s why:

Guaranteed Income That Doesn’t Depend on Interest Rates

Unlike traditional options or bond income, FIA income isn’t dictated by short-term interest rate movements. Insurance companies pool longevity risk—so you continue receiving income even if your personal account runs out. That guarantee can bring stability and comfort when rates move lower.

Value Advantage

Even in a low-interest rate environment, FIAs can still present a compelling option. That’s because other conservative ways to generate retirement income—such as bonds—may charge higher fees or pay even less. So, FIAs may offer more value for your money when compared to other options.

Lower Interest Rate Risk
Unlike bonds, with FIAs you would not lose principal when interest rates rise. This makes FIAs a more stable long-term option.

The Bottom Line

No one can predict where interest rates will go next—but you can choose a strategy that’s built to perform through rate changes. FIAs offer a balance of protection, potential, and greater financial peace of mind that may help you move toward retirement with confidence.

Talk with your financial professional today

Learn how an FIA might help protect and grow your retirement funds—no matter what happens with interest rates.

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* Guarantees rely on the financial strength and claims-paying ability of the issuing insurer. KUVPUB-001 10-25 C
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