Fixed-rate deferred annuities
- Ron Taraborrelli
- Feb 6
- 3 min read
Updated: May 8
An article in the Wall Street Journal titled "They Look Like CDs, but They’re Annuities-and Sales Are Booming” by Anne Tergensen, December 19, 2024, highlights how these fixed-rate deferred annuities work. Given their popularity, I wanted to write about some of the things you may want to consider before making your purchase.

For those who do not know, a fixed-rate deferred annuity (FRDA) is issued by an insurance company and has a fixed rate and fixed maturity period. Depending on the issuer, the maturities are normally as short as 3 years and as long as 10 years. As the title of the article suggests, they start to sound a lot like CDs, with a few major differences. As noted, they are issued by insurance companies and not banks and, therefore, are not FDIC-insured.
Other differences
The FRDA grows tax-deferred, unlike the CD, in which the interest earned is taxable each year. However, if you cash out the annuity prior to age 59 ½, even if at maturity, you will pay a 10% IRS penalty. Like CDs, there is a penalty for cashing out the annuity before maturity. The penalties are much higher than CDs and are typically on a declining scale. This is known as a surrender charge. For a 5-year annuity, it may look like this,
Contract Year | Surrender Charge |
1 | 5% |
2 | 4% |
3 | 3% |
4 | 3% |
5 | 2% |
The surrender charge is in addition to the early distributions if under the age of 59 ½. FRDAs allow access to up to 10% of the contract value without incurring a surrender fee. You will want to read the fine print, as it could be the anniversary contract value or even just 10% of the purchase amount.
FDRAs have higher minimums than CDs. Some of the minimums are as high as $50,000.
In my experience, many people put IRA money into an annuity. If you use traditional IRA money, you will want to inquire about the Required Minimum Distribution rules and whether the annuity allows you to take your RMD without the surrender change. Very few do not, but it is something you still need to check.
Since the FRDA is backed by the issuing insurance company, you will want to check its financial rating. You can find an insurance company's rating at S&P Global, Moody’s, and A.M. Best.
Once the FRDA matures, some contacts will be out of surrender and start to earn a minimum guaranteed interest rate. Usually, it is well below the issuing rate. There is normally an option to have the FRDA automatically rollover to the same maturity with the new issuing rate at the time. I’ve found most annuity brokers will not recommend this option as they can search for the best rates among the insurance companies at the time of maturity.
FRDA is a commissioned-based product, unlike CDs. Although the commissions are lower than those of most other annuity products, there is still an incentive to sell them.
If you are a conservative investor looking for a higher yield on your savings and can afford to commit to the holding period, a fixed-rate deferred annuity can be a great way to get more interest on your money.
If you have additional questions or want to learn more about fixed-rate deferred annuities, schedule your free consultation by clicking "Schedule Appointment" in the upper right-hand corner of this page.
Investment advice offered through Stratos Wealth Advisors, LLC,
a registered investment advisor. Stratos Wealth Advisors, LLC and
Synergy Wealth Management are separate entities.
Content in this material is intended for general information purposes only and should not be construed as specific investment advice or recommendations for any individual. Please contact your advisor with any questions or for specific recommendations regarding your own circumstances. Investing involves risks including possible loss of principal. There can be no assurance that a specific strategy will yield a profitable result or protect against losses
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