What is the difference between a variable annuity and a fixed annuity?
A variable annuity is actually participating in the stock market usually by use of mutual funds. You can vary your risk by going into more conservative funds as bonds and large cap funds or you can take on more risk with small cap funds, however, when the market goes down no matter which funds you are in, you will generally lose money. On the other hand a fixed annuity does not place your money in the actual market. A fixed annuity will usually set an interest rate when you purchase it and depending on your contract will pay that rate or never go below a certain guaranteed rate. You cannot lose your principal with a fixed annuity like you can with a variable annuity if the market goes down and you will always at least get your guaranteed minimum rate.
