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.