What Are Annuities?

Many people are surprised to learn that the word “annuity” does not describe a particular investment but rather a whole host of investments that are very different from one another. One type of annuity has returns based on gains in the stock market. Another type of annuity looks like a pension. This annuity provides monthly payments for the remainder of a person’s life. A final type of annuity looks like a time deposit, which gives an investor safety of principal and a specified interest rate.

Since these various types of investments all have the word annuity attached to them, many people confuse one with the other. When they hear something negative about one, they apply it to all types of annuities. For example, people often tell me that someone advised them against CD-type annuities because they have high costs. In fact, CD-type annuities don’t have any additional costs associated with them at all. CD-type annuities have no internal fees or add-on commissions that would lower an investor’s return. With CD-type annuities, the interest rate an investor locks in is the interest rate he will receive. Unfortunately, because several types of investments share the word annuity in their names, people confuse them with one another.

In this booklet, I want to help you learn how to safely earn more interest income using annuities. The path I’m taking is to briefly describe the types of annuities that are available and then to focus only on those that provide excellent interest rate income and safety of principal. The first step toward that goal is for you to understand that the word annuity applies to a variety of investments and not a particular investment. After that first small step, you are ready to discover how annuities can help you secure your financial future.