What is the difference between a fixed annuity and a variable annuity?

A fixed annuity credits a guaranteed (or minimum guaranteed) interest rate and provides predictable, stable payments; the insurer bears the investment risk. A variable annuity lets the owner allocate funds among investment subaccounts (similar to mutual funds), so the account value and the resulting payments rise and fall with market performance, and the owner bears the investment risk. Because variable annuities are tied to securities, agents selling them generally need a securities license in addition to an insurance license. Understanding the risk and return difference — fixed (guaranteed, insurer's risk) versus variable (market-based, owner's risk) — is a commonly tested annuity distinction.