2-Year Fixed Annuity Rates

Put simply, a 2-year fixed annuity is a tax-deferred financial product that offers a guaranteed rate of return on your principal for a 2-year period. It can help you hedge against market risk and avoid unwanted financial surprises in retirement. Often sold by insurance companies, 2-year fixed annuities are more predictable than 2-year variable annuities, which provide payouts based on the performance of underlying investments, like stocks and bonds.

Once you buy a 2-year fixed annuity, you’ll know exactly how much your annuity will grow and how much income you’ll receive at the end of the 2-year period. You may choose a multi-year guarantee annuity, or MYGA, which guarantees a fixed rate during the entire two years. After the two years end, you may either select a new term, surrender the annuity contract or simply let the MYGA move into a fixed account and earn a guaranteed minimum interest rate. It’s important to note that rates for 2-year fixed annuities are usually based on factors like market conditions and each insurance company’s financial strength ratings.

As a comparison, a 2-year annuity is tax-deferred, meaning you pay taxes upon withdrawal, unlike a 2-year CD, which is more suited for short-term savings needs. In short, a 2-year annuity may be more suited for your retirement plan.

The Federal Reserve plays a significant role in the federal funds rates, which impacts the overall interest rates banks, insurance companies, and other financial institutions can offer to their customers. When the Fed increases or reduces rates, rates for fixed 2-year annuities may change. If interest rates are low, the returns are low as well, meaning insurance companies must reduce rates for annuity holders. On the flip side, when rates rise, insurers are in a position to provide more competitive rates on annuities.

As with any financial product, it’s a good idea to weigh the benefits and drawbacks of 2-year fixed annuities, including:

As you shop around and compare 2-year fixed annuities, be sure to keep these factors in mind:

Let’s say you’re in your early 60s and close to retirement. If you’re searching for a strategy that will increase your nest egg, a 2-year fixed annuity can be a smart choice. This is particularly true if you’d like to avoid risky alternative options that may cause you to lose your principal. Through a 2-year fixed annuity, you can meet your goals and take advantage of tax-deferral growth, which may be appealing if you think you’ll be in a lower tax bracket once you retire.

A 2-year fixed annuity can be a valuable financial tool for those seeking stability and guaranteed returns as they approach retirement. With its predictability, you can secure a fixed rate of return on your investment, which can help mitigate market risks and provide peace of mind. However, it’s crucial to carefully evaluate the associated costs, inflation risks and alternative investment opportunities. By comparing different annuity products based on interest rates, surrender charges and the financial strength of providers, you can make an informed decision that aligns with your retirement goals. Whether you’re looking for a safe harbor for your savings or a strategic way to grow your nest egg, a 2-year fixed annuity may be worth considering.

Editor Norah Layne contributed to this article.