Fixed Annuities Explained

i bill Leff been here for money

evolution calm in today's video I'm

going to be talking about fixed

annuities so this is part of an entire

series that we're doing all about

annuities so if you like check out the

description below this video we have

links to all the other videos in the

series including some of the other types

of annuities where we're gonna be taking

a deeper dive into those so fixed

annuities are really pretty simple and

straightforward at least compared to

some of the other annuities out there

but I hope in this video we're gonna

just kind of go over some of the

highlights of them talk about some

things to watch out for and some things

that you should know before getting into

one of these fixed annuities so first of

all the best way to think about a fixed

annuity I guess to just put a frame of

reference is to think of them kind of

like a CD so generally fixed annuities

and there's two basic types there's the

traditional type of fixed annuity and

there is also something called a mygov

which stands for multi-year guaranteed

annuity and so typically with a fixed

annuity they're going to agree to pay

you a set amount of interest with a

traditional annuity they're going to

give you a rate and that rate could

change over time maybe it's gonna be

locked in for a year something to look

out for sometimes these will even kind

of pay some teaser rates where it might

seem like oh wow that's a really great

rate compared to some of the other

options that are out there but that rate

may only be locked in for a short period

of time and it might even be a lower

period of time than the surrender

schedule that there is on the annuity so

you might have a rate that's locked in

for a year or two but you might be

locked into that annuity for five or

even seven years or longer so and then

maybe subject to whatever those rates

are gonna be with a multi-year guarantee

annuity that's gonna be more like it's

think of it like a longer term CD where

you can maybe lock in for maybe a

two-year three-year maybe in five or

seven years you know and generally

speaking if the yield curve is positive

you're generally gonna get a little bit

more interest the longer you go out on

that time horizon but typically if you

bought like a 5 year as an example that

rate is going to be locked in for that

entire period of time but again

something to keep in mind is there

typically would be a surrender schedule

on that typically the surrender schedule

is going to man

whatever term of that my god that you're

going into so if it's a three year it

probably has a three or surrender

schedule a five year you're gonna

probably see a five year surrender

schedule in there as well and something

else to keep in mind though is you do

lose a little bit of flexibility once

that money goes in so of course if you

have a five year my gut and you need to

take your money out sometime during that

first five years you could get hit with

a penalty so that's gonna be something

that's going to be assessed by the

annuity company itself but with these

fixed annuities you also could get hit

with something called a market value

adjustment and so basically what that is

just like most other fixed income

instruments the the value of those

instruments goes up and down depending

on where interest rates are so if you

bought a five year my again it was

paying 3% today and interest rates

sometime during that went up two to four

percent and you needed to take your

money out early because rates are now

higher than they were when you put that

money in you're probably going to have a

negative market value adjustment that's

gonna mean that not only could you get

hit with that surrender penalty but you

could also lose a little bit of

principle as well can work the opposite

way so if interest rates went down and

if rates went from three percent down to

two percent you could get a positive

market value adjustment that could

offset maybe some of that penalty but

again you know that's something to

definitely look out for there a couple

of other things one is the size of the

deposit that you're going to give and so

generally speaking a lot of these will

have a different rate that will be

slightly higher if you're putting more

than $100,000 in and may be a little bit

lower rate if it's less than $100,000 so

that's another thing to to keep in mind

as with a lot of annuities there

generally are some free withdrawals

amounts as well too so basically that

could be anywhere from 5% on the low end

to maybe 15% and again these are the

kinds of questions that you want to ask

and some of the terms that you want to

know before getting into so let's say if

you had an annuity that had a ten

percent free withdrawal and you had

$100,000 in there what that means is you

could take 10,000

and you're not going to get hit with any

penalties or market value adjustments

you can just take that $10,000 and do

whatever you you want to do with that

another feature one last feature I guess

with some of these is that they do have

a feature where you can take your

original principal out without any

penalties at all that's something that

not all of these have but some of them

do and you won't get any interest but

you also won't get any penalties as well

so that's one last thing to maybe check

out there so generally again these are

gonna be the most simple think of them

as maybe a an alternative to CDs or to

bonds or some other instrument there

where you can lock in a rate that might

be a little bit better than some other

options out there keep in mind that

these are not FDIC insured and that's

gonna be very very important to know so

again like with all of these annuities

you're going to want to pay really close

attention to the credit ratings of the

issuing insurance companies a quality or

better in our opinion Double A is

certainly very very advantageous to go

to that because you want to make sure

that these companies are solid and that

they're hopefully going to be able to

meet their obligations and pay you the

interest and your original principal

back in and all of that so with that I

hope you got a little bit better

understanding of how these fixed

annuities work so in the next video

we're gonna get into fixed indexed

annuities which is going to be a subset

of fixed annuities and it's kind of its

own category there so it's one of the

four broad types of annuities that we're

gonna be talking about throughout this

video series so again we'll probably

have a link below to that video and I

hope you like what we're doing here

hopefully this is informational and

giving you some some good questions that

you need to ask before buying one of

these annuities and determining whether

or not an annuity might be right for you

so hit that like or subscribe button and

I'll see you back in my next video