This annuity contract earns a stated interest rate (fixed interest rate) offered by the insurance company. Alternatively, the interest rate may be calculated in a manner specified in the annuity contract. No matter how the interest rate is calculated, the investor knows exactly what the future returns or income stream the annuity contract will produce because the applicable rates are set at the time of purchase and never change.
Simply stated, fixed annuities are guaranteed lifetime income. Those planning for retirement are facing difficult times after the sting of stock market losses, reduced or canceled dividend payouts, and financial market uncertainty affecting corporate and government bonds. A guaranteed lifetime income is a secure, guaranteed, and smart investment for your money.
Fixed Indexed Annuities
This is an offshoot of a fixed annuity where the interest rate is based on an outside index such as a stock market index like the S&P 500 or the Dow Industrial Index. The annuity pays a base return rate, such as 3%, but the returns may be higher if the index returns greater than the base return rate.
A Fixed Indexed Annuity guarantees a minimum interest rate if held to the end of the surrender term and protects against a loss of principal. This is a smart choice for an annuity, and returns may be higher than fixed instruments such as CDs, money market accounts, and bonds. Fixed Indexed Annuities are insured by the State Guarantee Fund which is similar to the insurance provided by the FDIC.