There are generally three different types of annuities:
- Fixed annuities - Your money - minus any applicable charges - earns interest at rates set by the insurer, as specified in the annuity contract.
- Variable annuities - Money in a variable annuity earns a return based on the performance of the investment portfolios, known as "subaccounts", where you choose to put your money. Your investment choices likely will include subaccounts with different types and levels of risk. Your choices will affect the return you earn on your annuity. Subaccounts usually have no guaranteed return, but you may have a choice to put some money in a fixed interest rate account, with a rate that won't change for a set period. The value of your annuity can change every day as the subaccounts' values change. If the subaccounts' value increases, your annuity earns money. But there's no guarantee that the values of the subaccounts will increase. If the subaccounts' values go down, you may end up with less money in your annuity than you paid into it.
- Equity-indexed annuities - The insurer offers a guaranteed minimum return, plus it offers a variable rate based on the return of a specific index. During the accumulation period, the insurer credits you with a return based on interest earned plus or minus changes in the index, subject to participation rates, caps, charges, and other restrictions.