Utterly Bob

Indexed Annuities Explained Interest Compounding Some annuities pay simple interest during an fixed index annuity term. That means index-linked interest is added to your original premium amount but does not compound during the term. Others pay compound interest during a term, which means that index-linked interest that has already been credited also earns interest in the future. In either case, however, the interest earned in one term is usually compounded in the next.