It may be time to ditch savings accounts and mutual funds for fixed index annuities
Originally published: August 18, 2023
Updated: August 11, 2026
As of August 2026, the Federal Reserve's benchmark federal funds rate stands at 3.50%–3.75% (Federal Reserve, July 2026 policy decision) — down significantly from the 22-year high of 5.25%–5.50% it reached after the Fed's July 2023 rate hike. So, what does that mean for people who are trying to save up? Of course, cash savers may see a slight boost to their accounts any time interest rates go up, but there are other factors and options to consider, especially if you are planning to use your savings for retirement and expecting it to last throughout the remainder of your life.
Looking at yields alone, top-paying savings accounts today still offer annual percentage yields of around 4% (Bankrate, August 2026). Anyone can see that this makes savings accounts a more desirable option. Money-market mutual funds — mutual funds composed of holdings like government debt, repurchase agreements and corporate debt — are now yielding closer to 3.5%–3.7% (YieldFinder, August 2026), down from the roughly 5% they offered in 2023 as the Federal Reserve has cut rates.
One might think this creates a no-brainer decision and that these high yield savings accounts, or even more so, mutual funds, are the obvious way to go based on rates alone. It is important to look a little deeper, however, as mutual funds can have a lower liquidity than savings accounts due to the minimum balance stipulations and monthly withdrawal limits. They also tend to be much riskier and are not covered by FDIC insurance. With both of these strategies though, there is also the fact that when the Fed cuts rates, both money market mutual funds and savings accounts tend to drop their rates. This makes both of these options much less appealing to those who have their sights set on long-term growth for the future. This is exactly what has happened since 2023.
Overall, savings accounts and money market mutual funds may not be the “safest” option with the most “reasonable rate of return over time” for protecting your nest egg.
So, what if there is another investment vehicle that offers principal protection with growth potential, regardless of which direction the Federal Reserve moves rates next? Well, there is! And, it’s one that can potentially check all of the boxes today’s savers are looking for. We are talking about Fixed Index Annuities (FIA). Fixed Index Annuities provide an environment for your savings with no risk at all, as the money is protected from market declines while still typically making a reasonable rate of return. FIA’s grow based on the performance of a specific market index. When the index goes up, the asset grows, and when the index performs poorly, the investment is backed by an insurance company and protected, so there is no loss is incurred.
FIA’s allow your money to grow safely over time, while still providing you with access to your funds if you need it, since most FIA’s offer a free 10% withdrawal each year. This provides today’s savers with security, growth, and liquidity. For these and other reasons, we at Summerlin Benefits Consulting call FIA’s “safe money vehicles” and consider these to be a better option for many of our clients, especially during these uncertain times.
We would be happy to take your call today if you’d like to speak with one of our safe money experts and learn more about how you can maximize your savings and prepare for your future, safely in today’s market climate.
Important Retirement Planning Information
Every retirement strategy is unique, and not all annuity products offer the same features, guarantees, or level of protection. References in this article apply only to the specific retirement solutions discussed and should not be interpreted as applying to all annuities. The right strategy depends on your individual goals, financial situation, and retirement objectives. This is something Summerlin Benefits Consulting can help you determine.
Frequently Asked Questions
Q: What is a fixed index annuity and how does it work?
A: A fixed index annuity (FIA) is an insurance-backed savings vehicle that grows based on the performance of a specific market index. When the index rises, the annuity's value grows; when the index performs poorly, the insurance company protects the account from loss, so no market decline can reduce your principal.
Q: Is a fixed index annuity safer than a savings account or money market mutual fund?
A: In terms of principal protection, yes. Fixed index annuities protect savings from market declines through insurance-company backing, while money market mutual funds carry investment risk and aren't covered by FDIC insurance. Savings accounts are federally insured but offer lower long-term growth potential, and their rates drop whenever the Fed cuts rates.
Q: How much money can I withdraw from a fixed index annuity each year?
A: Most fixed index annuities allow a free withdrawal of up to 10% of the account value each year without triggering surrender charges. This gives savers access to a portion of their funds while the rest continues growing, protected from market losses.
Q: Why have money market mutual fund yields dropped since 2023?
A: Money market mutual fund yields are tied directly to the Federal Reserve's benchmark rate. As the Fed cut rates from a 2023 peak of 5.25%–5.50% to the current 3.50%–3.75% range, money market yields fell from around 5% to roughly 3.5%–3.7%.
