What is a Fixed Annuity?

Technically, a fixed annuity is a contract between you and an insurance company that offers you a fixed rate of interest on your money.

• The interest earned grows in the account tax-deferred until you decide to withdraw the funds or begin receiving income payments.¹ Because a fixed annuity is tax deferred, you earn additional interest compounding on the money you would normally be paying in taxes.
  

• The principal and interest are usually backed by the financial strength of the insurance company that issues the annuity.
  

• Along with this guarantee, some insurance companies also may provide a return-of-principal guarantee that safeguards beneficiaries against loss of principal.
  

• Since the death benefit is usually paid directly to the beneficiary(ies), the annuity proceeds are not generally subject to probate (a court-supervised process that establishes the validity of a will).

Note that a fixed annuity contract is not a life insurance policy or a health insurance policy. It is not a savings account or savings certificate, nor should it be bought for short-term purposes.

Purchasing a Fixed Annuity

You may either purchase a single-premium fixed annuity or a flexible-premium fixed annuity.  

Single-premium fixed annuity. You pay the insurance company only one lump-sum payment (premium).

Flexible-premium fixed annuity. You make a series of payments—an initial purchase payment (premium) and periodic payments (subsequent contributions).

¹ Taxes are due upon withdrawal and withdrawals prior to age 59½ are subject to a 10% federal tax penalty. Guarantees are subject to the claims-paying ability of the insurance company.