Annuities

In Finance, the term annuity is used to refer to any terminating stream of fixed payments over a specified period of time. It is used mainly in connection with the valuation of a stream of payments, taking into account time, value of money, and concepts such as interest rate and future value.

Examples of annuities are regular deposits paid into a savings account, monthly home mortgage payments, and monthly insurance payments. Annuities are classified by the frequency of payment dates. The payments or deposits may be made weekly, monthly, quarterly, yearly, or at any other regular interval of time. When a person retires with a lumped sum of money they would often buy an annuity to provide a regular income throughout their retirement and with payments which may increase each year at the prevailing annual rate of inflation.