Banks’ fixed annuity sales fell 16% in the fourth quarter, according to Beacon Research’s Fixed Annuity Premium Study.

That decline follows a 13% fall from the second to the third quarter and a 43% decline compared to the fourth quarter 2008.

Beacon’s figures are based on a snapshot of the 10 largest insurance companies, representing 86% of total sales. Those banks sold 1285.6 million in fixed annuities in the fourth quarter, down from $292.4 million in the third quarter. Only three of those banks, Wells Fargo [WFC], SunTrust and M&T Bank, managed to eke out single-digit, quarter-over-quarter growth.

“It’s almost all a question of rates right now,” said Judith Alexander, the director of sales and marketing at Beacon, which is based in Evanston, Ill. “The demand for corporate bonds is now easing off, but most recent net flows have been toward bond funds, which drove down yield. Fixed annuities are primarily backed by corporate bonds, and as the spread between corporate bonds and Treasuries kept narrowing, fixed annuity rates narrowed too.”

Certificate of deposit rates, fixed annuities’ primary competition, are based on Treasury rates, so they suffered too.

“At one point in 2008 Treasuries went negative and there was still a stampede to buy them,” Alexander said. “But in 2009, many people just got sick of no returns.”

Variable annuity sales started to pick up in the fourth quarter to fill the gap, and indexed annuities did well all year, doubling sales from $1 billion in 2008 to $2.1 billion in 2009.

According to Beacon, five-year fixed annuities paid just four basis points more than Treasuries in January, 18 in February and eight in March, so Alexander doesn’t anticipate any turnaround in fixed annuities’ fortunes any time soon. However, as the economy starts moving again and corporate bonds start to behave normally, fixed annuity sales should start to recover, she said.

That could take a while, according to Geoffrey Bobroff, the president of Bobroff Consulting, an East Greenwich, R.I.-based mutual fund consultant and advisory firm. Twelve to 18 months is a reasonable outlook for that to happen, but even then the question is how much the Fed will raise rates.

“When the economy starts to recover it’ll happen more rapidly, but as long as unemployment is where it is, rates won’t go up much,” he said. “It’s unlikely [fixed annuity sales will improve until interest rates start to rise.”

Banks aren’t holding their breath, said Heywood Sloane, the managing director of the Bank Insurance and Securities Association in Wayne, Pa.

“The trend among program managers last year was for there to be much less reliance on fixed annuities,” he said. “There was more focus on variable annuities, and life insurance, which represented 2% in total sales in 2007, went up to 5% in 2008 and 8% last year. Fixed annuities look like they’ll continue to shrink as part of the pie.”

Investors are more interested in other forms of income right now, such as high-quality stocks that pay dividends, and real-estate investment trusts, Sloane said. “When the return on CDs is bupkis and the five-year return on a fixed annuity is maybe 2.5%, who’d want that?” he said.