Fixed rate annuities

How it works

You deposit a lump sum. The insurer credits a fixed interest rate for a fixed number of years — often three, five, or seven. At the end of the term you can take the money, renew at the then-current rate, or move it elsewhere. Interest compounds tax-deferred.

Where it competes

• Against a CD. Often a higher rate than a bank CD of the same term, but backed by an insurance company rather than FDIC insurance.
• Against a bond. A known rate and no price fluctuation, in exchange for giving up upside.
• Against cash. Better than sitting in a checking account if you won’t need the money during the term.

What to check before you sign

• Surrender charge schedule. How much it costs to get your money out in years one through seven. These are often 7%, 7%, 6%, 5%, 4%, 3%, 2%.
• Free withdrawal provision. Most contracts allow 10% per year without penalty. Know the number.
• Maturity date and what happens then. Some contracts auto-renew at a much lower rate if you don’t act.
• The insurer’s financial strength ratings. A.M. Best, S&P, Moody’s. This is who is actually making the promise.
• State guaranty association coverage. Oregon’s guaranty association covers a limited amount per insurer — know the cap.