How Does a Fixed Index Annuity (FIAs) Work?

As with fixed annuities and variable annuities, a Fixed Index Annuity is a contract between you and an insurance company, in which you pay premiums and the issuer promises to make periodic payments to you in the future. You can pay premiums in one lump-sum or in installments over time. What makes a fixed index annuity unique is that they offer a minimum guaranteed interest rate, but allow for the possibility of higher earnings by linking the interest rate calculation to the performance of an equity index. Interest is calculated using a formula based on changes in the index. The terms of the Fixed Index Annuity contract dictate how interest is calculated and when it is calculated.

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