A deferred annuity which grows by interest rate earnings is a fixed deferred annuity. A deferred annuity that permits allocations to stock or bond funds and for which the account value is not guaranteed to stay above the initial amount invested is called a variable annuity (VA).

A new category of deferred annuity, called the fixed indexed annuity came about in 1995. fixed indexed annuities may have features of both fixed and variable deferred annuities. The insurance company typically guarantees a minimum return for EIA. An investor can still lose money if the annuity is surrendered early, before a "break even" period. An oversimplified expression of a typical EIA's rate of return might be that it is equal to a stated "participation rate" multiplied by a target stock market index's performance excluding dividends. Interest rate caps or an administrative fee may be applicable. Deferred annuities in the United States have the advantage that taxation of all capital gains and ordinary income is deferred until withdrawn. In theory, such tax-deferred compounding allows more money to be put to work while the savings are accumulating, leading to higher returns. A disadvantage, however, is that when amounts held under a deferred annuity are withdrawn or inherited, the interest/gains are immediately taxed as ordinary income.

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