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Fixed annuities are interest-based vehicles similar to bank-issued CDs, but geared specifically towards retirement savings. Typically, a lump-sum of cash locks in an interest rate ranging from 3% to 10% for a period of 3 to 15 years. The initial deposit — otherwise called the premium — can range from $5,000 to $1,000,000.
Fixed annuities are very low risk, have more liquidity than CDs, are tax-deferred, and typically offer higher yields than bonds, CDs, treasuries, or money market accounts.
A fixed annuity uses one of two distribution models: immediate or deferred. Immediate fixed annuities start issuing monthly payments right away, until the initial premium plus interest gets paid out. Deferred annuities don't pay out until the end of their term, compounding interest like a typical retirement savings account.
Most fixed annuities also feature a lifetime income option — allowing you to convert accumulated savings into a guaranteed monthly income for the rest of your life. This feature is highly desirable to many retirees and sets annuities apart from other types of retirement investments.
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