Is An Indexed Annuity A Fixed Annuity? 
A fixed annuity is a contract issued by an insurance company . In that contract the owner is not really required to do anything except make at least one deposit . The insurance company guarantees everything else . The insurance company will accumulate money in the annuity , if it is deferred , and guarantees that the money will receive a guaranteed amount of interest each year . Currently there are a great number of fixed annuities in force with interest rates far in excess of the interest rates offered to new customers . The company guarantees those rates for as long as the contract is in force . These guarantees continue into the annuitization phase when the company will return to the annuitant an amount of money guaranteed by a formula inside the contract and will make those payments until the annuitant passes away , or even beyond in many cases . Everything is guaranteed by the company . In contrast a variable annuity has few guarantees . The owner can choose into which funds the deposits will be invested and can often select to maintain that control even when the policy is annuitizing . This results in uneven results both during accumulation and annuitization . Sometimes that works for the benefit of the annuitant , but it could work against the annuitant if the underlying securities fail to perform . Incidentally it takes someone with a variable annuity license to sell this product . An indexed annuity is somewhere in between these extremes . The money that accumulates in the contract usually has a guaranteed minimum level of interest . This is often 0 which can be a great deal better than a significant minus number . The amount of interest credited to the account is linked by the insurance company to one of the leading indexes . The Dow Jones Average is one index . The Standard and Poors index is another . The company uses these indexes to set the interest that will be credited to the account . Normally the index annuity does not receive the exact interest rate indicated by the index . There will either be a ceiling above which the insurance company will not go or the interest rate is modified by a factor . For example if the S&P went up 10 % , depending upon the contract , the indexed annuity might pay 7 % or 70 % of the index according to the contract . However it might pay 5 % because there is a 5 % ceiling on the interest the company will pay . The index annuity is attractive because it allows the annuitant to participate in the results of the market without ever actually holding shares of stock . It has upside potential but it doesnt have any downside risk . During a rising market we would expect the index annuity to do quite well , However , it might not do as well as the Variable Annuity . During a down market it will not lose money , however a Variable Annuity can lose money . At the same time the Fixed Annuity will continue to earn its guaranteed rate of interest and may even raise its interest rate from time to time , but everything is guaranteed . 