Can you lose money in a fixed indexed annuity?
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Short answer: Not from the index: a fixed indexed annuity's 0% floor means a down year credits 0%, so market drops don't come out of your account value. The floor covers index crediting only, so rider fees, surrender charges on early withdrawals, any market value adjustment and taxes can still reduce what you have. Guarantees depend on the issuing insurer's claims-paying ability, since annuities aren't FDIC insured.
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What the 0% floor means
In a fixed indexed annuity (FIA), your interest is linked to a market index, and your money isn't invested in the market. At the end of each crediting period, the insurer figures your index credit. If the index went up, you get part of the gain within your cap, participation rate or spread. If it went down, the floor sets your index credit at 0%.
Example: the index falls 15% for the year. With an FIA's 0% floor, your index credit is 0%, not -15%. We like to say zero is your hero.
The SEC's Investor.gov annuities page (checked October 22, 2026) puts it this way: in a fixed indexed annuity, the interest rate is guaranteed never to be less than zero, even if the market goes down.
What the floor doesn't cover
We'd rather be upfront here. The floor covers index crediting only. Fees, withdrawals, surrender charges and any applicable market value adjustment can still reduce value. Each one works a little differently.
Rider fees
Optional riders, such as a lifetime income rider, usually charge an annual fee, and it comes out whether the index was up or down.
Example: $100,000 account value, a 0% index credit and a 1% yearly rider fee figured on $100,000. The fee is $1,000, so the account value ends the year at $99,000. Many contracts figure the fee on the benefit base instead, which can be higher than the account value, so check yours.
Surrender charges
If you take out more than the free-withdrawal amount during the surrender period, a surrender charge applies to the extra. The SEC bulletin says surrender periods typically last six to ten years, or even longer.
Example: 10% free withdrawal a year and a 7% surrender charge in year 1. On $100,000, you take out $30,000 in year 1. $20,000 is over the free amount, and 7% of that is $1,400.
Market value adjustment
Some contracts add a market value adjustment (MVA) to withdrawals above the free amount during the surrender period. It can lower or raise what you get, depending on how interest rates have moved since you bought. Ask whether your contract has one.
Taxes on early withdrawals
The SEC bulletin notes that taking money from a tax-deferred indexed annuity before age 59½ may mean a 10% federal tax penalty, on top of ordinary income tax on the gain. Not tax advice.
Time and inflation
A 0% year doesn't shrink the account, but it doesn't grow it either, and prices keep rising. Example: at 3% inflation a year, $2,000 a month 20 years from now buys about what $1,107 buys today. Over the years, how much the account grows depends on the index years that come in positive.
Do I keep the interest I already earned?
In most FIAs, interest credited at the end of a period becomes part of your account value. A later down year then credits 0% and doesn't take back what was already credited. How and when that happens depends on the crediting method, so ask how your contract handles it. Taking money out in the middle of a crediting period can also mean you miss that period's credit.
An FIA floor is different from a RILA floor
The word "floor" means something else in a registered index-linked annuity (RILA). According to the SEC bulletin, a RILA floor limits your loss to a set percentage. Its example: with a 10% floor and a 12% index drop, you would lose 10% of contract value. In an FIA, the floor on index crediting is 0%. If the paperwork includes a prospectus, the product is registered with the SEC as a security, such as a RILA or a variable annuity, and you can lose money in it. Fixed indexed annuities are insurance products regulated by your state insurance department and generally don't come with a prospectus.
How the floor compares with a MYGA and a CD
A MYGA has a set rate for a set term, so there's no index and no floor to think about. A CD at a bank pays a fixed rate for the term and is FDIC insured within limits. An FIA gives you a chance at more interest in good index years, with the 0% floor in bad ones, in exchange for crediting limits and a surrender period. Annuities aren't FDIC insured. Guarantees depend on the issuing insurer's claims-paying ability. For fixed-rate comparisons, see this week's 5-year MYGA rates.
Questions to ask about the floor
- Is the floor 0% on every index strategy in this contract?
- What fees come out in a year the index credit is 0%?
- How much can I take out each year without a surrender charge, and is there an MVA?
- If I take money out mid-period, do I lose that period's credit?
- Is this a fixed indexed annuity or a RILA?
Plain-English FAQ
Can a fixed indexed annuity lose value in a down market?
Not from the index itself. The 0% floor means a down year credits 0% instead of a loss. The account value can still go down from rider fees, withdrawals, surrender charges or a market value adjustment.
Does the 0% floor protect me from surrender charges?
No. The floor covers index crediting only. If you take out more than the free-withdrawal amount during the surrender period, a surrender charge can apply, and the SEC's Investor Bulletin says surrender periods typically last six to ten years, or even longer.
Do rider fees still come out in a 0% year?
Usually, yes. An optional rider's annual fee is charged whether the index was up or down. Example: the index is down 15%, your index credit is 0%, and a 1% yearly rider fee still comes out.
Do I lose the interest I already earned when the market drops?
In most FIAs, interest credited at the end of a period becomes part of your account value, so a later down year credits 0% and doesn't take it back. Check how your contract's crediting method handles it.
Is a fixed indexed annuity floor the same as a RILA floor?
No. In an FIA the floor on index crediting is 0%. In a registered index-linked annuity (RILA), a floor limits your loss to a set percentage, so you can lose money to the index, according to the SEC's Investor Bulletin on indexed annuities.
Is the 0% floor a government guarantee?
No. Annuities aren't FDIC insured. Guarantees depend on the issuing insurer's claims-paying ability, so ask for the insurer's financial strength rating.
Ready for your number?
Every contract has its own caps, fees and surrender schedule, so the general rules on this page only go so far. You can get a free one-minute income quote at quote.garycosby.com, and if you choose, talk with one of our licensed advisors about how a specific contract works. It's your money and your decision.