- An investor places the money in an annuity account with the insurance company, bank or investing firm of his choice. This firm guarantees to give the investor the money plus interest over a period of time. This allows for a growth in the amount of money received. While the investing company has the money, the company can use it to invest in stocks, bonds, or lend it to others with an interest rate and keep the economy flowing.
- There are a few different types of annuities. The fixed annuity offers a set interest rate and a set pay scale. This style of annuity is the most stable of the annuities, although it is not always the best-paying annuity.
Variable annuities allow you to invest money into different investment opportunities, typically bonds or mutual funds. Variable annuities can be more risky than fixed annuities and do not provide for immediate recuperation of the funds invested. However, the amount of money received in the end can be more than the fixed annuity.
Equity index annuities are a special type of annuity in which the amount returned is based upon the equity index. This annuity can make significantly more money than the variable annuity, but also has a significantly higher risk attached to it. To protect investors, the company selling the annuity often offers a minimum return amount. - Purchasing annuities can be done at a bank, credit union, stock or investing company or insurance company. No matter where you purchase the annuity, ensure that they are federally insured against loss. A good idea is to compare interest rates on the different annuities and see which company is able to provide you with the highest interest rates and therefore the highest returns.
- While some annuities start to pay out immediately after opening the account, more commonly the annuities are set up to start paying out at a designated time. This way the annuity has time to gain interest and more money can be paid out. The average annuity pays out monthly, and this can go in a few different ways. Life annuities are paid to the person until death and any remaining money is kept by the company issuing the annuity. Period certain annuities pay out for a certain number of years only. Life annuity with period certain means that the individual is paid until death and the remaining amount is paid to the survivor designated.
- There are several disadvantages to opening up annuities. These include commission charges, annual fees and surrender charges. In addition the money invested is not typically immediately accessible in case of an emergency ,and if it is accessed, high fees are often charged on that money.
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