What is a Fixed Indexed Annuity?

About Indexed Interest Potential

What Is A Fixed Indexed Annuity?

You might assume, based on its name, that a “fixed indexed annuity” doesn’t come with any flexibility. However, fixed indexed annuities (or FIAs) offer many options to choose from. For example, you can choose what index (or, possibly, indexes) your annuity will be based on.


The interest on your FIA will increase based on the changes in the index you select. depending on your individual contract, you may be able to select how much you want to connect with specific indexes.

Benefits Offered By FIAs

Another benefit of FIAs is the option to choose the crediting method.

For example, you can choose whether you want to receive payments monthly or annually. Furthermore, depending on the indexes selected for crediting, you may see an increase in interest on your FIA. Some calculate their interest based on the differences in rates within a certain period. Also, the index value of your FIA may be determined by the date you signed the contract. So, it’s calculated each year on the same day.


The most important benefit that comes with FIAs is the safety of your money. No matter what happens in the market, you won’t suffer any losses. The insurance company agrees to protect your principal against losses. You get guaranteed* safety, reasonable rates of return**, and a retirement strategy that’s easy to understand and allows you to feel more confident.

senior couple living room financial advisor what is a fixed index annuity

What Is A Fixed Indexed Annuity, and How Does It Grow

You probably won’t have to worry about the process of aligning your annuity with an index as much as you think you will. Instead, our team at Sonoma Financial will walk you through the steps to it. There are several interest rate options available to you.


The interest rate of your annuity will be impacted by a number of factors. For example, participation rates, caps, and spreads will all have an effect on this. It’s important to consider these factors.


It is possible for an FIA to earn a maximum amount of interest. An annual or monthly cap typically applies. The interest rate is not based on the index rate if the selected index reaches above the CAP. The insurance company calculates your interest based on the cap rate. Additionally, a CAP is usually followed by a spread.


Indexed interest is often calculated based on a spread. Index gains are subtracted from an amount in a given period. For example, if the spread on an annuity is 4%, and it has grown by 9%, the contracted would be credited with a 5% indexed interest.

Participation Rate

Participation rates are implemented into some FIAs. The participation rate will be used to determine the amount of index increase to be applied.

Each individual's situation is different

We can help you learn more about what a fixed indexed annuity is and how it may be right for you. Schedule an appointment with us, or attend one of our educational dinner seminars. We can answer any questions you may have.

Scroll to Top