What is a defining characteristic of a fixed annuity?

A defining characteristic of a fixed annuity is that the insurer is obligated to pay a guaranteed minimum interest rate. This means that the returns on the annuity are stable and predictable, providing policyholders with a sense of security regarding their investment. Fixed annuities are designed to offer consistent payouts or growth over time, which is particularly appealing for individuals seeking reliability in their retirement planning or savings strategy.

In a fixed annuity, the insurer assumes the investment risk and is responsible for ensuring that the policyholder receives the guaranteed interest, regardless of fluctuations in market conditions. This assurance of a minimum return differentiates fixed annuities from other financial products that might have variable returns contingent upon market performance, which can expose investors to higher risk.

This characteristic makes fixed annuities suitable for conservative investors who prefer a stable and secure financial product rather than one that could potentially diminish in value due to market volatility. The promise of guaranteed returns can enhance the appeal of fixed annuities for individuals planning for long-term financial security.