A fixed annuity guarantees to pay a specified interest rate that is based on the current rate environment. The initial rate is guaranteed for one or more years and subsequent renewal rates are guaranteed to stay above a specified minimum rate. Because it provides several guarantees, a fixed annuity is viewed as a conservative financial product.
An index annuity is a special type of fixed annuity in which the interest rate is determined in part by reference to an investment-based index, such as a Standard & Poor’s index or a NASDAQ index. As interest is credited, the earnings are locked in to the account value; additionally, the account will not participate in any losses. Because of this reference to an index, the annuity offers the ability to participate in some gains associated with a rising financial market while at the same time providing the security and guarantees similar to those associated with traditional fixed annuities.
A variable annuity offers earnings and income payments that fluctuate with the performance of specific investment funds. While variable annuities have the potential to provide high returns, they differ from fixed products because the policyowner bears investment risk and possible loss of principal. As these products are more complex and have associated with them more risk, the broker who sells this annuity must be licensed to sell securities.
14274-C (06/08)
Note that a 10% IRS penalty may apply to any withdrawals taken prior to age 59½; this penalty would be in addition to any normal taxation of the withdrawal.
The following applies if the annuity is purchased through a bank or a credit union: (a) the annuity is not a deposit; (b) the annuity is not guaranteed by any bank or credit union; (c) the annuity is not insured by the FDIC or any other governmental agency; (d) the purchase of an annuity is not a provision or condition of any bank or credit union activity; and (e) some annuities are subject to investment risk and may go down in value.
Product availability varies by state.