Are Fixed Annuities Compounded?
Fixed annuities typically use compound interest, where the interest earned is added to the principal, and future interest is calculated on the new total.
However, some fixed annuity policies may use simple interest, where interest is calculated only on the original principal.
It’s important to understand the specific terms of your annuity contract.
Understanding Interest in Fixed Annuities
- Compound Interest:
- In most fixed annuities, interest is compounded.
- This means interest is calculated on both the principal and previously earned interest.
- Leads to exponential growth over time.
- Simple Interest:
- Read Your Policy: Always check your specific annuity contract to understand the interest calculation method.
- Consult a Financial Advisor: For personalized advice, consider speaking with a financial expert.
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