Investment Dictionary

Fixed Annuity

An investment vehicle offered by an insurance company in which the company (a) guarantees the return of principal in the policy plus a guaranteed interest rate and (b) pays a \"declared\" interest rate based on current company returns. An insurance company generally bases its interest rate on the earnings of the general assets of the company. This usually includes high quality mortgages and intermediate term bonds. Fixed annuities typically do not have administrative fees. The insurance company makes money on the difference between what the investments earn and what is paid out to policyholders. It is difficult to determine what this difference is because it is not disclosed and is set by the insurance company. Most policies have Surrender Charges to withdraw funds (see the Surrender Charges definition).

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