What is an annuity?

An annuity is an interest-bearing contract between you and an insurance company in which your money accumulates and compounds, free of current income tax. This tax deferral feature can make annuities an ideal choice for retirement savings. Because you pay no taxes on your accumulated earnings until you actually take money out, your money can grow as much as 30% to 40% faster in an annuity than in a taxable investment earning the same rate of return. There are essentially three types of annuities: fixed, variable and immediate.