How is interest earned in a fixed annuity typically calculated?

In a fixed annuity, the interest is calculated based on a guaranteed rate that is established by the insurance company at the time of the annuity contract. This means that the investor can expect a predictable return on their investment, which provides financial security and certainty. The rate is typically specified in the contract and does not fluctuate with market conditions, allowing the investor to plan for future income needs without the concern of variable market performance.

This guaranteed nature of the interest calculation differentiates fixed annuities from other types of annuities, such as variable annuities, where returns depend on market performance and can vary greatly. The assurance of a fixed return makes these annuities particularly attractive to individuals seeking stable income streams, especially during retirement.