What is a key characteristic of fixed annuities?

A key characteristic of fixed annuities is that they provide fixed rates of return that are backed by a guaranty fund. This means that the insurer guarantees the interest rate for the annuity, ensuring that the policyholder receives stable and predictable returns over time. Fixed annuities are considered low-risk investments, as they are not subject to market fluctuations, unlike variable annuities which offer returns based on the performance of underlying investments in the stock market.

The backing by a guaranty fund also adds a layer of security for policyholders, reassuring them that even if the insurance company were to face financial difficulties, their principal and guaranteed interest would still be protected. This makes fixed annuities an appealing option for individuals looking for a reliable source of income, especially during retirement.