Fixed vs. Variable Annuities: What's the Difference?

A fixed annuity pays a guaranteed interest rate for a set period — similar to a CD, but tax-deferred and issued by an insurance company. Your principal is protected, and your returns are predictable.

A variable annuity invests in sub-accounts (similar to mutual funds). Your returns depend on market performance, with the potential for higher growth — but also the risk of losses.

Fixed indexed annuities are a middle ground: returns are tied to a market index like the S&P 500, but with a floor that protects you from losses. You give up some upside in exchange for downside protection.

Fees, surrender charges, and rider costs vary widely. Variable annuities in particular can carry significant ongoing fees. Always look at the full cost — and the guarantees — before deciding which type fits your plan.