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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