A deferred annuity allows savings to accumulate, tax deferred, until you choose to receive payouts. You decide how your money accumulates--at a fixed, indexed, or based on the performance of stocks and bonds. Fixed, indexed, and variable annuities earn in different ways and with different guarantees and risks. Fixed annuity Money in a fixed annuity earns interest at a rate set for a defined period of time and which is guaranteed not to drop below a certain minimum. When the defined period ends (1-5 years depending on the terms of the contract), a new rate may take effect or the old rate may be offered again. In no case will the new rate fall below the guaranteed minimum. When a recipient begins receiving income, a fixed payout is guaranteed. Fixed annuities generally offer death benefit protection so, if an owner dies before payments begin, a designated beneficiary would receive at least the amount contributed (minus any withdrawals). Index annuity An index annuity is a type of fixed annuity. Its earnings accumulate at a rate based on a formula linked to one or more published equity-based indexes, such as Standard & Poor's 500 Composite Stock Price Index™ (S&P 500), which tracks the performance of 500 of the largest publicly traded securities. It guarantees a minimum accumulation value and offers a variety of payout options. The index used, the formula that determines the rate, and the guaranteed minimum value can vary from company to company. Death benefit protection also may be available. Variable annuity With a variable annuity, money is placed in subaccounts invested in stock and bond funds. Overall, the return on a variable annuity is subject to market fluctuation. Total value depends on how much risk the annuity owner assumes, performance of the subaccounts, and what charges and fees are deducted. These factors are explained in the annuity's prospectus, which includes financial statements and outlines the objectives, levels of risk, and operating expenses of each account. Money in a variable annuity can be moved from one subaccount to another without incurring tax obligations at the time of transfer. Over the long term, variable annuities reflect performance and growth in the economy and can serve as an effective hedge against inflation. However, it is possible to lose money in a variable annuity. To help alleviate this risk, some variable annuities allow an annuity owner to allocate some money to a fixed account with a guaranteed rate of return. There are also other optional guarantees that can be purchased to provide protection against downturns in the market. Many variable annuities allow the owner to choose between fixed or variable income payments. A variable payout will fluctuate based on the performance of the underlying subaccounts. Some variable annuities guarantee that the payout will not fall below certain levels. Most variable annuities offer death benefit protection, which would pay a beneficiary the current account value (less withdrawals) or the amount of the initial contribution.