Fixed Annuity
An annuity that credits a set interest rate and protects principal from market losses.
A fixed annuity pays a fixed rate of interest for a stated period, much like a CD but issued by an insurance company. Your principal is not exposed to market swings, and the contract can later be converted into guaranteed income payments.
The interest rate and principal protection are backed by the financial strength and claims-paying ability of the issuing insurance company; a fixed annuity is not a bank product and is not FDIC insured.
Example
A retiree places $100,000 in a 5-year fixed annuity earning a set rate, knowing the balance won't fall if the stock market drops.
This definition is for general educational purposes only and is not financial, tax, or legal advice. Tim Hartle is an independent insurance professional. Annuity guarantees are subject to the claims-paying ability of the issuing insurance company and are not FDIC insured. Rules and product features vary by situation and by state. Please consult a qualified advisor about your own circumstances.
Related Terms
Annuity
A contract with an insurance company that can turn a lump sum into a stream of income, often for life.
Surrender Charge
A fee for withdrawing more than the allowed amount from an annuity during its early years.
Claims-Paying Ability
An insurer's financial capacity to meet its contractual obligations, which backs annuity guarantees.
Tax Deferral
Postponing taxes on growth until money is withdrawn, allowing earnings to compound in the meantime.
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Annuities are insurance contracts. Guarantees, including guaranteed lifetime income benefits where available, are subject to the claims-paying ability of the issuing insurance company. Product features, fees, withdrawal restrictions, and surrender charges vary by contract.