What is the average rate of return for an annuity?

When you buy an annuity, you’re not making an educated guess on your rate of return like you do with stocks. The average annuity return can depend on factors such as the guaranteed interest rate your annuity company promises, how your insurer measures its risk against your life expectancy, and current interest rates.

Read on to learn more about the average annuity return across different types of products. You’ll also learn how insurance companies set rates and how Gainbridge annuities can help add certainty to your retirement plan.

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What is an annuity return?

An annuity return is the annual growth or credited interest that a contract earns over time. The type of annuity you buy dictates how your insurer calculates your potential growth:

• Fixed annuities credit a guaranteed interest rate set by the insurance company.
• Fixed indexed annuities earn interest linked to market index performance, limited by a cap rate, participation rate, or spread.
• Variable annuities invest in subaccounts whose returns can ebb and flow with the stock market.
• A deferred or immediate annuity yields a payout rate rather than a traditional return by converting your premium payment or payments into guaranteed income.

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How are annuity interest rates determined?

Insurers set annuity interest rates using prevailing interest rates — like corporate and treasury bond rates — and how your specific type of annuity credits growth.

Here are the crediting methods insurers use.

Declared interest rate

With fixed annuities, your insurance company declares a guaranteed interest rate for a set period. Prevailing market interest rates and your insurer’s bond portfolio performance typically influence the rate you receive. Once you lock it in, your rate won’t change for the entire contract term.

Participation rate or cap rate

Fixed indexed annuities credit interest based on market index performance, but with built-in limits. Insurers may use the following tools to control how much market upside you’ll see in your annuity account:

• Participation rates: This determines the percentage of index gains credited to your annuity. You might receive 50% of the underlying index’s growth. For example, if the S&P 500 increases 10% and your participation rate is 50%, your credited interest amount will be 5%.
• Cap rates: This metric sets a maximum interest crediting amount. So, if the underlying index goes up by 15% and your cap rate is 5%, your insurer credits your fixed indexed annuity account with 5% interest. If the index rises 3%, you receive 3%.
• Spreads: This is the amount the insurance company subtracts from the index growth before crediting interest to your fixed indexed annuity. For example, if the index goes up 10% and your spread is 3%, you can receive 7% interest. A spread can eliminate smaller growth — if the index increases 2% and your spread is 3%, your credited growth is 0%.

Subaccount performance

Unlike fixed indexed annuities, variable annuities may not offer downside protection. Variable annuities can tie returns directly to the performance of mutual fund-like subaccounts. While gains can be higher, you can lose money if the market drops.

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Average annuity interest rates by type

The type of annuity, your appetite for risk, and sometimes stock market conditions determine average annuity rates. Products with the potential for higher growth come with moderate-to-high risk profiles, whereas fixed annuities can provide the peace of mind of knowing exactly how much money you’ll have at the end of your contract.

The percentages below reflect a tradeoff of predictability and certainty versus the amount of risk you’re willing to take on.

Fixed annuities — multi-year guaranteed annuities (MYGAs) like Gainbridge’s SteadyPace™ and FastBreak™ products — offer predictability, certainty, and principal protection. Index annuities can balance growth alongside downside protection. Variable annuities can provide the highest potential reward, but come with the most risk. Immediate annuities prioritize guaranteed income over growth.

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How to calculate your annuity’s average growth

To understand your actual annuity growth — how much your contract has grown over time — use these two measurements.

Total growth

Total growth shows how much your annuity has appreciated relative to your investment.

(Current Value – Contributions) / Contributions × 100

For example, if you contributed $100,000 to an annuity that is now worth $130,000:

($130,000 – $100,000) / $100,000 = 0.30, or 30% total growth

This gives an absolute number, but fails to show you how fast your annuity grew annually.

Compound annual growth rate

Use compound annual growth rate (CAGR) to calculate the average annual growth over your entire annuity contract.

(Ending Value / Starting Value)^(1 / Years) – 1

If your starting value is $100,000 and your ending value is $130,000 over 10 years, the CAGR formula looks like this:

CAGR = ($130,000 / $100,000)^(1/10) – 1 = a CAGR of 2.66%.

For fixed annuities, your CAGR mirrors your guaranteed interest rate so it’s easy to model long-term retirement income. For indexed and variable annuities, CAGR helps even out performance across strong and weak market years.

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What is a good average growth rate for annuities in 2026?

A good average growth rate depends on the annuity type and the broader interest rate environment. Your personal risk tolerance and retirement timeline also play a role. Unlike stocks or ETFs, factors like insurer guarantees and crediting methods can shape annuity returns.

Here’s a look at the potential average annuity growth rates for 2026:

• Fixed annuities: 4% to 5% is considered a competitive rate. If you need guaranteed growth and visibility into exactly how much retirement income to expect, fixed annuities may make sense as a core investment option.
• Fixed indexed annuities: 3% to 7% is realistic as an average under a moderately-performing market. These annuities protect your principal, but can cap your upside. So, if you’re looking to fully participate in upside and can stomach market volatility, you might be better off in other directly market linked products such as stocks or index ETFs.
• Variable annuities: 6% to 8% is a reasonable rate of return, assuming a diversified portfolio of stocks and bonds in the underlying subaccounts. To put this in perspective, the S&P 500 averaged a 9.7% rate of return between 2005 and 2024. With variable rate annuities, consider how mortality and expense (M&E) fees, administrative charges, and underlying fund management fees can eat away at your overall rate of return. Diversification does not guarantee profit or protect against a loss in declining markets and past performance is not indicative of future results.
• Immediate annuities: With these annuities, you may look to focus on securing a payout rate that works alongside other retirement income sources, such as Social Security, to provide a predictable income stream.

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How to maximize your annuity growth

To maximize your annuity growth rates , explore the right type of annuity for your goals. If your focus is securing a reliable stream of lifetime income, guaranteed fixed annuity rates may make sense. If you are looking for more growth potential consider other products such as a fixed index annuities or variable annuities.

Shop around for competitive rates. Compare guaranteed interest rates, interest crediting methods (for indexed annuities), and payout rates (for immediate income annuities). Match these promises with each insurer’s financial strength ratings. Review credit ratings from agencies such as AM Best to assess where your annuity provider has the balance sheet to follow through on guarantees.

Some fixed annuities offer high interest rates if you commit to a longer term. If you’re able to give your principal more time to grow, you can potentially receive a higher  annuity interest rates, and potentially increase your stream of guaranteed income in retirement.

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How Gainbridge aims to simplify fixed annuities

Many retirement investors balance annuity rates with the need for guaranteed growth and a predictable income stream when they stop working. If you’re worried about losing money and outliving your retirement savings, fixed annuities can be an attractive option. With a fixed annuity, you know exactly how much money you’ll end up with, providing clear visibility into the size of your annuity payouts in retirement.

Gainbridge digital-first annuities can help simplify your retirement plan. In addition to a fixed interest rate, 100% principal protection, and a reliable income stream in retirement, Gainbridge annuities come with no hidden fees or commissions. So you don’t have to worry about extra charges effectively lowering your annuity rates.

Don’t gamble on your future income — guarantee it. Explore Gainbridge today and learn how annuities can fit into your retirement plan.

This article is intended for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. For advice concerning your own situation please contact the appropriate professional. The GainbridgeⓇ digital platform provides informational and educational resources intended only for self-directed purposes. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Rates are subject to change. Please visit gainbridge.com for current rates, full product disclosure and disclaimers and additional information. Investing involves risk, including the loss of principal. Past performance is not indicative of future results.

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