How Interest Rates Affect Annuities
Find out why higher interest rates benefit some annuities more than others.
Annuities base their returns on market interest rates. Given that rates were recently at their highest level since 2001, conditions over-all are favorable for buying an annuity. But higher rates benefit some products more than others.
Here, we look at how higher interest rates impact different types of annuities.
Fixed index annuities
Fixed annuities are paying higher guaranteed rates to match current market conditions. Fixed index annuities have also become a better deal. Many now offer higher possible caps for your returns as insurers are earning more.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The interest rate environment doesn’t matter as much for variable annuities, as the returns depend on the performance of the mutual funds they invest in rather than rates.
Initial bonuses
Many annuities also pay initial bonuses as a percentage of your deposit that can be worth 10% or more.
“If someone bought an annuity years ago when rates were low, it could make sense to break a contract to get the better rates. A bonus would help offset the surrender charge,” says Mindy Oglesby, a certified financial planner and CEO of Oglesby Wealth Strategies in Watkinsville, Ga.
How old is the annuity holder?
High interest rates could help you earn more if you’re looking for income, but it depends on your age. “It matters much more the younger you are,” says David Blanchett, head of retirement research for PGIM DC Solutions, the investment management division of Prudential.
If you’re 55, the amount of your payout is based on the insurer investing the money for the long term. High interest rates can help you lock in higher lifetime income. If you’re 85, high interest rates don’t matter as much. “At this point, payouts are mainly based on life expectancy.”
The possibility of rate cuts
Interest rates could fall later this year, although higher-than-expected inflation in early 2024 may delay rate cuts from the Federal Reserve. The possibility of declining rates provides extra incentive to purchase some types of annuities sooner than later.
But before you pull the trigger, make sure an annuity is appropriate for your long-term financial goals. If you cancel an annuity early, surrender charges could wipe out any benefit you gain by purchasing it when interest rates are high.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
Related content
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

David is a financial freelance writer based out of Delaware. He specializes in making investing, insurance and retirement planning understandable. He has been published in Kiplinger, Forbes and U.S. News, and also writes for clients like American Express, LendingTree and Prudential. He is currently Treasurer for the Financial Writers Society.
Before becoming a writer, David was an insurance salesman and registered representative for New York Life. During that time, he passed both the Series 6 and CFP exams. David graduated from McGill University with degrees in Economics and Finance where he was also captain of the varsity tennis team.
-
US-China Trade Hopes Send Stocks to New Highs: Stock Market TodayApple and Microsoft are on track to join Nvidia in the $4 trillion market cap club.
-
A Lesson From the School of Rock About the MarketsIt's hard to hold your nerve during a downturn, but next time the markets take a tumble, remember this quick rock 'n' roll tutorial and aim to stay invested.
-
I Retired at 65 With $7.8 Million and Feel Like I Over-Saved. My 40-Something Son Is on the Same Path. Should I Tell Him to Reconsider?We ask financial experts for advice.
-
Deciding on Senior Living? 10 Things You Should KnowSenior living options are no longer God's waiting room.
-
I'm a Financial Pro: This Is How You Can Guide Your Heirs Through the Great Wealth TransferFocus on creating a clear estate plan, communicating your wishes early to avoid family conflict, leaving an ethical will with your values and wisdom and preparing them practically and emotionally.
-
Try This One-Minute Test to Uncover Hidden Health RisksFinding out this little-known fact about your body could reveal your risk of heart disease and more. It's a simple, free check for healthy aging.
-
Child-Free Cruises Perfect For Your Retirement CelebrationHow to find a bespoke ocean or river vacation for adults. Many of these options are smaller, charming river cruises, expeditions, or niche experiences.
-
Social Security Wisdom From a Financial Adviser Receiving Benefits HimselfYou don't know what you don't know, and with Social Security, that can be a costly problem for retirees — one that can last a lifetime.
-
Take It From a Tax Expert: The True Measure of Your Retirement Readiness Isn't the Size of Your Nest EggA sizable nest egg is a good start, but your plan should include two to five years of basic expenses in conservative, liquid accounts as a buffer against market volatility, inflation and taxes.
-
2026 Social Security COLA is 2.8%: What You Need to KnowThe SSA has announced the 2026 Cost-of-Living Adjustment (COLA), the new maximum taxable wage cap, and the earnings requirements for Social Security credits.