Equity Indexed Annuity

Another popular type of annuity is the equity indexed annuity. While most fixed annuities offer fixed annuity rates of interest, an equity indexed annuity has interests that are tied to the stock market. This feature of an equity index annuity makes it special and attractive to some investors.

How does an equity indexed annuity work?

The equity indexed annuity is also known as the EIA. The way an equity indexed annuity works is that it offers a minimum interest rate. However, if the stock market or the index which the equity index annuity is tied to does well, then the equity indexed annuity investor will earn more.

What is the downside of the equity indexed annuity?

As with all annuities, the fees you have to pay to invest in an equity indexed annuity are high. That means, when the market does well, you will only gain a fraction of the market's returns because a lot of the gain is used to pay fees of the equity indexed annuity.

Should I invest in an equity indexed annuity?

If you believe in the stock market and believe that the S&P 500 or other stock indices will always rise in the long run, then you may not need to be investing in an equity indexed annuity. Many people invest in an equity indexed annuity and when the market returns handsomely then they wish they did not invest in the equity indexed annuity.