Types of Annuities
Deferred annuities come in two types, which describe how an annuity invests its deposits during the accumulation phase. Fixed annuities earn a fixed interest rate on the funds the holder deposits. Periodic payments come in fixed dollar amounts. Variable annuities invest the holder’s money deposits in a portfolio of securities. Periodic payments will vary, depending on the success of the investment.
One annuity that blends the fixed and variable options is called an equity-indexed annuity. Its rate of return varies based on an index of securities, such as the S&P 500, but is restricted to some fixed range. For example, returns may be capped at some maximum rate, such as 12%, or guaranteed not to fa