What a fixed annuity does
A fixed annuity is a contract with an insurance company. In exchange for a premium, the insurer credits interest according to the contract and promises specified benefits. The account is not invested directly in the stock market.
Why people consider one
Fixed annuities are commonly evaluated by people who want principal protection, tax-deferred growth, or a predictable interest-crediting approach. Some contracts can later support an income stream, while others focus primarily on accumulation.
Trade-offs to review
Access to funds may be limited during a surrender period. Withdrawals above a contract's free-withdrawal amount can trigger surrender charges. Withdrawals before age 59½ may also have federal tax consequences. Rates, terms, liquidity provisions, and optional benefits vary by insurer and contract.
Questions to ask
- How long is the surrender period?
- How is the interest rate set and for how long is it guaranteed?
- What amount can be withdrawn without a surrender charge?
- Are there optional riders, and what do they cost?
- What is the issuing insurer's financial-strength rating?
Guarantees depend on the claims-paying ability of the issuing insurance company. A licensed professional can confirm current availability and contract terms in your state.