Fixed annuities are nothing more than a fixed rate for a fixed period of time, issued by insurance companies. Oh, by the way, they are tax-deferred investments as well. There are no hidden fees like some of the other annuity products.
How do insurance companies make money if there are no fees? Simple. You and I wouldn’t go out today and buy a 30-year bond, but insurance companies will and have been for years. They make money off the spread that they earn and what they are paying you. For example, let’s say XYZ insurance company offers to pay you 3% for five years. They might be making 5.5% on their money internally from the bonds. They pay you 3%, while earning 5.5% on their own money thus making a 2.5% profit. Not bad when you factor in the millions and millions of dollars they take in on fixed annuities.
Are they safe? Yes
Can you take out the interest on a yearly basis? Yes
Is my principle protected? Yes
Can I get my money back after the time period I agreed to invest? Yes
How long will my money be tied up? You pick. Generally, the length is anywhere from 2 to 10 yrs.
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