A fixed annuity is an insurance contract in which the insurance company credits the policyholder's contract value with a guaranteed minimum interest rate (typically a declared rate reset annually). Unlike variable annuities, the insurer bears the investment risk — contract assets are held in the insurer's general account and the policyholder faces insurance company credit risk rather than market risk.
During the accumulation phase, interest accrues on a tax-deferred basis. During the distribution (payout) phase, the policyholder can receive a stream of income through annuitization or periodic withdrawals. Fixed annuity income payments are fixed in dollar amount (hence the name), providing predictability but no inflation protection.
Fixed annuities are insurance products, not securities, and are not subject to SEC or FINRA registration. The selling agent needs only a state insurance license — no securities license is required. This distinguishes fixed annuities from variable and indexed annuities (though whether indexed annuities are securities is a nuanced regulatory question).
Key costs include surrender charges (similar to variable annuities), mortality and expense fees (though often lower than variable products), and spread — the difference between the return the insurer earns on general account assets and the rate credited to policyholders.
> Exam tip: On the Series 6/7 and Series 65/66, know that fixed annuities are NOT securities — only a state insurance license is required to sell them. This is a common exam trap. Know that gains are taxed as ordinary income upon distribution (not capital gains), and the same 10% early withdrawal penalty (before 59½) applies as for variable annuities. The insurer's general account bears the investment risk.