Business Glossary

product that guarantees the initial interest rate for funds on deposit for the length of the maturity, whether it is for a period of 1, 3, 5, 10, or 15 years. At maturity, the policyholder has two choices: (1) withdraw the funds without having to pay a surrender charge (it is important to note that taxes must be paid on the interest earned and there is a 10% penalty on the earnings if the policyholder is less than age 59½); or (2) roll the funds over into another annuity for a limited number of years or a product of longer duration. In contrast to certificates of deposit (CDs), interest earned through this annuity accumulates on a tax-deferred basis. This type of annuity provides liquidity, preserves principal, and stipulates a fixed rate of return.