If you are interested in making your money grow over time, you should
know about an investment instrument called fixed annuity. Fixed annuity
is an investment option offered by different insurance companies. There
are several other variations of annuities like variable annuity and
indexed annuity but fixed annuity remains one of the most popular
choices for individual investors. Annuity is, essentially, a contract
between an investor and insurance company.
The insurance company is governed by the state and has to follow
certain regulations. There is also a tax deferment component that is
governed by the Internal Revenue Code.
So what is the fixed annuity and how does it differ from other types of
investment instruments? The fixed annuity is an investment vehicle that
allows the investor to receive a stream of payments over the life of
the annuity. The main characteristic of the fixed annuity is the fact
that that the interest rate that the investor earns over the life of
the annuity is fixed. This can be considered as an advantage or
disadvantage depending on the situation and current economic
conditions. One of the main reasons why fixed annuity is used is to
provide the fixed retirement income when certain fixed payouts are made
on regular basis.
The guaranteed interest rate could be set for a life of the annuity
(the contract term) or for some other fixed period of time. For
example, a fixed annuity could have a fixed interest rate for five
years and after that a new fixed rate is set for the next five-year
term. Many interment professionals would compare fixed annuity to the
Certificate of Deposit. However, annuity is not covered by federal
deposit insurance. Another important fact about annuities is that they
usually provide the opportunity for tax-deferred savings. In other
words the taxes are only paid when the money is taken out, not while
they grow.
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