What is an equity-indexed annuity?

An equity-indexed annuity is a combination of a fixed and a variable annuity. The marketing pitch usually goes something like this: Equity-indexed annuities give you the best of both worlds.

Guaranteed return: As with a fixed annuity, you get the low-risk appeal of a guaranteed minimum return (usually 2% to 3%).

With some upside: But, as with a variable annuity, you also have a shot at higher gains if the stock market rises, since an equity indexed annuity's return is also tied to the performance of a benchmark index, such as the Standard & Poor's 500.