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The Inside Scoop on How Fixed Annuity Works

Annuities in general have the characteristics of an insurance, which is usually known as the Guaranteed Minimum Death Benefit or In short “The death benefit.” In the event of death of the purchaser of the annuity before the redemption or payments starts the designated beneficiary will get the amount invested minus any withdrawals. Before the withdrawals are done the return to an annuity is not taxed which is a benefit that draws people to invest in annuities. In the case of a withdrawal the returns is taxed as a current income and not like the capital gains tax rate. Fixed annuity allows individuals receive a life income, to defer payment on their retirement benefit and they guarantee them a rate of return.

A fixed annuity is a type of savings that has a low risk and they assure one of a positive rate of return. It allows people who invest in them to have a peace of mind. They are usually guaranteed by the company that is issuing them both the earnings and the principal. If you are planning to purchase them, it is advisable to ask a financial expert the insurance ratings of a company and their financial strength. An annuity is described as a contract between the purchaser of the annuity and the insurance company in which the purchaser makes a series of payments in return for a periodic of payments at some future date or immediately after the payment. In the case of fixed annuity, the insurance company pays a specific rate of interest as your account keeps growing.

There is a tax penalty where you withdraw your money at the early stages of an annuity and you will be forced to pay surrender charges to the company. You will have to agree with the insurance company on the amount per dollar that will be the periodic payments.

Fixed annuity stabilizes investment income and people who are about to retire usually go for them. It will enable you to earn a fixed income and your principal amount does not change during the term of your plan as interest is accumulated over a period. Even where the interest rate in the market falls you will still receive the same fixed rate but the opposite is also true. You will not benefit if the interest rates in the market goes up. It has a zero risk factor that is why fixed annuity is the most acceptable.

The interest rate offered by this annuity is competitive and they are better than that of Certificate of Deposits. You will get a higher yield when you decide to withdraw if you wait for a longer period. There are insurance companies that offer bonus rates to those who invest when the period of their investment ends. On top of your contractual interest you will get to enjoy extra interest therefore, you will have a boost on your principal amount. A number of places where you will find fixed annuities. You will find them in Brokerage firms, insurance companies, banks etc.