Fixed Rate Annuities – The Guide Before You Buy

Fixed rate annuities are among the safest types of annuity products available on the market. Although they don't address all of the risks associated with an annuity purchase, they certainly take care of one of the more concerning for potential investors. As the name implies, the fixed rate annuity provides the investor a fixed interest rate on their contract.

Despite the guarantee of interest rate on the account, the term "fixed" can be somewhat misleading. These types of fixed annuities provide the annuity owner a guaranteed minimum interest rate in their account, despite actual fluctuations of rates. This usually works out for the investor as the account rates can only increase, not decrease.

As far as the behavior of the actual annuity contract, the fixed rate annuity functions similar to other annuities. The contract can be created with either an immediate premium or deferred premium structure, and follows similar payment patterns. Once annuitized, the income payments will be for either a fixed period or for the duration of the annuitant's lifetime.

Fixed rate immediate annuities are simply immediate fixed annuities with a fixed rate of return. Immediate annuities begin payments one period after the creation of the contract. This means that the distributions will either start one month or one year after the contract start date. If you favor the distribution payments to begin at a later date, then a deferred annuity would be preferable.

Most annuities of this type are for contract lengths of one year to ten years. The lifetime annuity option is used much less often in this type of fixed account as the payments are exposed to inflationary risks.

If none of this is making sense, you should probably have annuities explained to you first. Get a basic understanding of how they work, and then come back and look at the details later.

To get a good fixed rate annuity quote, you should be looking to a couple of different sources. Each annuity company offers slightly different products and slightly different rates. You need to take the time to research your various options and find the product that fits both your needs and your budget. A good fixed annuity is usually just a function of finding the right combination of features and price.