The definition of an annuity is a sum of money or an investment that is paid at regular intervals.There are two main types of annuities:
- Fixed rate annuities - The primary goal of the fixed rate annuity is to save money for the long term. You will make monthly payments of premiums into the annuity and upon a specified date of maturation or when you are ready you can withdraw your funds.With a fixed rate annuity, you are guaranteed a certain payout amount based on the rate that was available or agreed upon at the time you purchased your annuity. Many people that are looking for a way to invest their money that offers little to moderate risk prefer the fixed rate annuity.
- Variable rate annuities - Variable rate annuities differ from the fixed rate varieties because there is not a determined rate at which you will compensated. The rate of return fluctuates with the market. Variable rate annuities are sometimes marketed to people that are capable of handling a higher level of risk.
Although the method of obtaining and maintaining these two types of annuities are the same, there are differences in how you will be paid in the long run. Also, the type of annuity that you choose will greatly affect the amount of money you can make in a certain period of time. Depending on your savings goals, one type of annuity may be preferable over another.
Money that people receive regularly once they are retired is an example of an annuity.