What is a Fixed Annuity?

If you are familiar with CDs, or certificates of deposit, then the concept of a fixed annuity should be fairly easy for you to understand. A fixed annuity works like a CD, but is generally higher yielding and is issued by an insurance company rather than a bank or credit union. A fixed annuity is an attractive savings vehicle to include in one’s retirement portfolio, particularly to individuals looking for investments with guaranteed interest rates.

There are two types of fixed annuities: deferred fixed annuities and immediate fixed annuities. If you are nearing retirement or already retired, an immediate fixed annuity investment may have more appeal. The investor pays a lump-sum, and can receive that sum plus the guaranteed interest on the annuity in as little as one year. Deferred annuities, on the other hand, can be purchased over the course of several years. Deferred fixed annuities are more flexible than immediate fixed annuities because investors do not have to decide how much they will contribute to the annuity at the time of investment. If you invest in a deferred fixed annuity and encounter unexpected income and decide you want to beef up investment in that annuity, you can.