Which type of annuity guarantees both principal and interest?

A fixed annuity guarantees both the principal amount and a specified interest rate over a predetermined period. This means that the investor can expect stable and predictable returns, as the insurance company assumes the investment risk. With a fixed annuity, the policyholder knows exactly how much they will receive upon maturity, providing a sense of security and aiding in long-term financial planning.

In contrast, a variable annuity does not guarantee the principal or interest, as its returns are linked to the performance of underlying investment options, such as stocks and bonds. Similarly, a flexible premium variable annuity allows for varying contribution amounts but still does not provide guarantees on principal or interest due to its dependence on market performance. An equity index annuity offers a way to participate in stock market gains while protecting against losses, but it does not guarantee the full return of principal and interest. Therefore, the fixed annuity is the only option that provides both a guarantee on the principal and a fixed rate of interest, making it the correct answer.