Annuities
Indexed Interest Potential
Fixed Indexed Annuity Rates
A fixed indexed annuity, or FIA, may serve as a useful part of your overall retirement strategy.
Stability
An FIA provides a steady stream of payments based on the performance of an external index or index. This product provides a degree of safety, yet still, allows for a reasonable rate of return** over time. Unlike other financial vehicles, which put your money at risk in order to obtain high returns, an FIA may offer the “best of both worlds.” So, how do fixed indexed annuity rates work?
Crediting Method
A major benefit of an FIAs is the flexibility provided in regard to the crediting method. Your insurer determines how much indexed interest you will receive based on a few rules and factors. Additionally, it’s possible to choose to have credit applied annually, or monthly. Some crediting methods use the average value over a certain period of time, while others base their interest on the differences in rates. Others still show the changes in the index since the FIA contract’s start date and determine the interest based on that change one year later.
How are Fixed Indexed Annuity Rates Determined?
To start, let’s talk about how fixed indexed annuity interest rates are determined. Your annuity is aligned with at least one index, if not multiple–which may offer you more options for interest rates. Whenever the rate exceeds a certain point, you will receive indexed interest earnings. Furthermore, these earnings will remain protected even if the index goes down. The money in your annuity will be guaranteed* safe, even in the event of a stock market downturn.
It’s important to remember that everyone has a different situation, and will need to design a different strategy around it. You have your own goals and needs for retirement. And we may be able to help you find products to help meet them. Reach out to Freedom Dream Team today: We can help you get informed on your options when it comes to fixed indexed annuity rates.
Factors That May Impact Your Interest Rate
An FIA may have a maximum rate of interest, or a cap. A cap typically lasts from around a month up to a year. If your selected index exceeds the cap, then the interest rate will not apply.
The participation rate is calculated after the cap. Basically, because of a participation rate, only a percentage of the increase in the index sets your rate, rather than the full increase.
With a spread, the index deducts a percentage of interest as time passes. For example, let’s say that the annuity spread increases by 4%, and the index increases by 9%. In that case, the annuity would receive just a 5% indexed interest credit.