How Do Guaranteed Annuities Work? 
Assuming you 're addressing non-qualified tax deferred annuities crediting a fixed interest rate , here 's a few items of discussion . Annuity companies generally have investment portfolios dominated by investment grade government and corporate bonds . The company keep a some of the portfolio earnings and then credit a fixed interest rate over a fixed period of time like 5 years to the policy owner . The surrender charges protect the company from `` disintermediation '' the mismatch of portfolio returns and interest policy crediting from policy owners who elect to surrender the policy before the contract terms are over . 