The amount you invest to buy a fixed annuity contract goes into the provider's general account, along with premiums from other investors and other company revenues. Because the company has such large sums to invest, it can diversify its holdings and potentially earn a better return
on its investment for the same investment risk
than you could as an individual. A potential downside of buying a fixed annuity may occur if the issuing company gets into financial difficulties, since its creditors would have a right to assets
in the general account. Such situations aren't common, though, in part because the insurance industry is heavily regulated and individual companies are rated regularly. But be alert: Companies touting fixed annuity returns that are much higher than the rates offered by the competition may be too good to be true. Sometimes, promises of stellar returns are a red flag that annuity money is going into riskier investments such as junk bonds. Before buying, ask to see the rate that the issuing company has paid over the past ten years and be sure to check the company's ratings.