1. What is a 5 Year Fixed Annuity?

A 5 Year Fixed Annuity is a financial product that provides guaranteed interest earnings over a 5-year period with no withdrawals. It offers predictable growth with principal protection.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( FV \) — Future Value (USD)
• \( PV \) — Present Value/Initial Investment (USD)
• \( r \) — Annual interest rate (decimal)
• 5 — Number of years

Explanation: The formula calculates how much an initial investment will grow over 5 years at a fixed annual interest rate, with interest compounding annually.

3. Importance of Future Value Calculation

Details: Calculating future value helps investors understand the growth potential of their money, compare investment options, and plan for financial goals.

4. Using the Calculator

Tips: Enter the initial investment amount in USD and the annual interest rate as a decimal (e.g., 5% = 0.05). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between fixed and variable annuities?
A: Fixed annuities offer guaranteed returns at a set rate, while variable annuities invest in subaccounts with returns tied to market performance.

Q2: Are there penalties for early withdrawal?
A: Most fixed annuities have surrender charges for withdrawals before the term ends, typically 5-7 years.

Q3: How is this different from a CD?
A: Annuities are insurance products with tax-deferred growth, while CDs are bank products with taxable interest.

Q4: What happens after 5 years?
A: You can typically withdraw funds, renew the annuity, or convert to periodic payments.

Q5: Are there tax advantages?
A: Yes, earnings grow tax-deferred until withdrawal, when they're taxed as ordinary income.