What is the difference between variable and fixed rate annuities?
Fixed rate annuities have minimum guarantees and “fixed” (or declared) interest rates. They are meant for the conservative investor that wants to take advantage of tax-deferral within a conservative investment. Since the interest rate from year to year is pre-determined or declared annually, the investor has a good idea of what his or her account value will be from year to year. A variable annuity, however, has “subaccounts” ranging from conservative to aggressive, designed like mutual funds, where the more aggressive investor can allocate all or a portion of their funds. There are fixed subaccount options within a variable annuity, so an investor can be just as conservative as a fixed annuity buyer, but several more investment options within the annuity. Unlike a fixed annuity, a variable annuity has “rolling” values depending on the performance of the underlying funds they’ve selected. Values may go up or down.
