Facts

You purchase a fixed annuity with a single up-front payment of $5,000 to $1 million. The insurance company holds the principal for a length of time, usually between 1 and 16 years. During this time interest accrues.

Types

There are two types of fixed annuities: deferred and immediate. Deferred fixed annuities hold the investor's principal and earn interest that can be paid out in regular installments or collected in one lump sum when the annuity ends. In an immediate fixed annuity, the investor begins receiving a monthly income from the insurance company that lasts the rest of his or her life.

Benefits

Fixed annuities guarantee higher interest rates than savings accounts or certificates of deposit. They also provide security, delivering regular monthly income.

Considerations

Fixed annuities can carry hidden fees and hefty commissions. There's also a significant penalty for withdrawing funds before the annuity ends.

Warning

Because they're sold through insurance companies as opposed to banks, fixed annuities are not guaranteed by the Federal Deposit Insurance Corporation. If the insurance company goes out of business, the principal is lost.

Source:

FreeAnnuityRates.com

Invest-FAQ.com

CNNMoney.com