Some types of fixed annuities are losing ground while other types gain popularity.
Sales of traditional deferred fixed annuities fell more than 30% in 2010. With these products, investors usually pay a single premium and receive a specified interest rate for a certain number of years. Going forward, the investor can renew at the issuer’s new interest rate or exchange the old annuity for a different one, perhaps from a different issuer.
Just as bank account and money market fund yields are at lows levels, the same is true with fixed annuity interest rates so buyers have not been enthused lately.
Sales of index annuities hit record levels last year. With these products, investors get a return pegged to the performance of a stock market index, such as the S&P 500. The potential return has a ceiling but investors have a chance for a higher return than they would get from a traditional fixed annuity.
Index annuities also have a guarantee that they’ll lose little or nothing in case the stock market goes down. So index annuities may offer some upside with limited downside. These annuities are complicated, though, so go over the fine print carefully if you are considering such an investment.
