Not a candidate
Who is not a fixed annuity candidate? In broad terms, if someone has a high risk tolerance and wants the highest return, they would buy an investment – stocks, mutual funds, hard assets. Fixed annuities – whether index or stated rate – are not designed to produce investment-like returns.

At the other extreme there are consumers that have accounts at five different banks to ensure all deposits stay with FDIC coverage limits. There are consumers that would not buy a U.S. Treasury bill because it isn’t FDIC insured. And, let’s face it, there are consumers that are FDIC groupies and will never buy a fixed annuity.

Weak candidate
An investor is probably not going to switch from stocks to fixed annuities – unless they should never have been a stock buyer in the first place (see D.). However, investors may use a fixed annuity for their lower-risk money – as an example they may use fixed annuities instead of bonds, but I’ve found it is difficult to break across the “stocks & bonds” mentality that many investors and financial counselors have, even though a strong case can be made to use fixed annuities instead of bond funds.

Strong candidate
The ideal candidate is the consumer that will accept the “non-FDIC risk” of the fixed annuity because of the higher potential interest rate, but does not want market risk. This consumer merely needs to be asked which fixed annuity they wish to purchase. The number of strong prospects increases as the spread between bank rates and higher fixed annuity yields – or potential index-linked yields – increases.

A strong candidate is also one that benefits from the specific attributes of fixed annuities. Say a person is suffering from Social Security benefit taxation. Deferred interest earnings are not included in the tax calculation, so the annuity may save more interest dollars from taxes.

Everybody else
Misplaced investors are fixed annuity prospects. In the turn of the century bull market, many savers entered the stock market because they perceived the market risk to be lower than its actual risk level. When the stock market returns were “adjusted” by the millennium bear market, many of these investors became stock market refugees. Many returned to the bank, but some were led to the fixed annuity shore.

The current stock market environment has not witnessed the exuberance of the one a few years ago, so there may be fewer misplaced folks from which to prospect, but there are savers with money sitting in the bank that remember the higher returns of the good market times and would like higher than bank return potential without market risk. Fixed annuities fit the bill.

And then there are those that like the idea that they can never earn less than a minimum guaranteed rate of interest regardless of what the future brings. They enjoy knowing that this is at least one asset that keeps growing without being actively managed, and appreciate the extraordinary record of safety annuity owners have enjoyed. These are also fixed annuity candidates.