Fixed Annuity

Fixed annuities offer predictability. During accumulation, the insurer credits a set interest rate, often guaranteed for a number of years. During payout, the annuitant receives a fixed amount at regular intervals.

For example, a person invests 100,000 in a fixed deferred annuity guaranteeing 4% a year for five years. At the end of five years, the account would be worth about 121,665, regardless of what happens in financial markets.

Fixed annuities appeal to people who want security and do not want to take investment risk. Their returns are usually similar to or slightly above those of high-quality bonds or fixed-term deposits, and they may offer tax advantages in some countries.

Risks include inflation, which reduces the real value of fixed payments over time, and the insurer's financial strength, since the guarantee depends on the insurer being able to pay. Early withdrawals may face surrender charges. Fixed annuities differ from variable annuities, where returns depend on investment performance.