Assuming you're addressing non-qualified tax deferred annuities crediting a fixed interest rate, here's a few items of discussion. Annuity companies generally have investment portfolios dominated by investment grade government and corporate bonds. The company keep a some of the portfolio earnings and then credit a fixed interest rate over a fixed period of time like 5 years to the policy owner. The surrender charges protect the company from "disintermediation" the mismatch of portfolio returns and interest policy crediting from policy owners who elect to surrender the policy before the contract terms are over.
A Guaranteed Annuity is not a true type of annuity. It is just a general term that refers to any annuity with a Guaranteed Rate.
All Fixed Deferred and Fixed Immediate Annuities are guaranteed. Indexed Annuities also feature guarantees, but also offer the chance for a return that is higher than just the guarantee.
Co-Founder, TermInsuranceBrokers.com, Goldenzweig Financial Group, Las Vegas, Nevada
I believe what you are referring to is a fixed annuity. Fixed annuities are a type of annuity that has a defined, guaranteed payment structure. The annuitant agrees to pay the insurance company a single payment, or a series of payments, and the insurance company agrees to pay you a fixed amount (income), starting immediately (an immediate annuity) or at a later date (a deferred annuity), for a specified time period (this could be for 10 years, 15, years, 20 years, for life, etc.).
The monies put into an annuity grow on a tax-deferred basis, which is a huge advantage for your retirement planning.
I hope the information is helpful - please feel free to contact me for help and if you have any other questions. Thanks very much.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
Guaranteed annuities are the basic annuities underwritten by insurance companies. In these annuities the risk of investment and life expectancy are all born by the insurance company. For an immediate annuity the company guarantees a lifetime stream of income. If the annuity is a deferred annuity they also guarantee that the annuity will increase in cash value at a minimum specified rate of interest and then guarantee the proceeds will purchase an immediate annuity at a guaranteed rate.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
The traditional annuity was a unilateral contract in which the insurance company promised to pay a guaranteed stream of monthly income for the balance of your life. Some people feel that they can invest money and be more successful than the insurance company and so they purchase contracts in which the accumulation of the funds is not guaranteed. Sometimes these variable funds are available during the payout period as well.
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All Fixed Deferred and Fixed Immediate Annuities are guaranteed. Indexed Annuities also feature guarantees, but also offer the chance for a return that is higher than just the guarantee.
The monies put into an annuity grow on a tax-deferred basis, which is a huge advantage for your retirement planning.
I hope the information is helpful - please feel free to contact me for help and if you have any other questions. Thanks very much.