What is a fixed interest rate in an annuity?

A fixed interest rate in an annuity refers to a stable return that is determined at the contract’s outset. This means that when the annuity is established, the interest rate is locked in and remains constant throughout the duration of the contract. This can provide the policyholder with predictable income since they will know exactly how much interest their investment will earn over time, regardless of fluctuations in the market or changes in economic conditions.

This characteristic makes fixed-rate annuities particularly appealing to those who are looking for stability and security in their retirement planning. Unlike options that involve variable returns based on market performance or fluctuate with each payment, a fixed interest rate guarantees a specific level of growth for the investment, offering a sense of financial reassurance for individuals. Additionally, those who choose annuities with fixed interest rates generally appreciate the protection against market volatility that such products offer.