Annuities
Indexed Interest Potential
Indexed Interest Potential
A flexible long-term strategy is a key to a successful retirement. Fixed indexed annuities (FIAs) offer financial security as well as flexibility.
FIAs can earn interest by tracking an index, such as the S&P 500. Additionally, they offer protection against loss in the event of a market decline. FIAs are linked to an external index. meaning stocks are not purchased directly. If the market rises, you’ll be able to earn interest on your FIA. The insurance company that issues the FIA is required to protect your money. Additionally, insurers set the fixed indexed annuity rates so that you’ll get a reasonable rate of return over time. Regardless of what the market does, your principal is protected and you’ll have the opportunity to earn interest. It’s reassuring to some retirees to know they have a reliable income source that they won’t outlive.
Crediting Methods
You can also select the crediting method with an FIA. The insurer who issued your FIA contract determines the interest rate. They do this based on various rules and timeframes. These are some of the most common crediting methods:
- A monthly or annual payment
- The average value over a period of time
- The index value being based on the date of your annuity contract
- Differences in rates over a given period
Factors That Affect Fixed Indexed Annuity Rates
You should consider the different factors that influence fixed indexed annuity rates when choosing a crediting method. These factors include:
In some cases, an FIA can earn a maximum interest rate. This cap usually lasts one month or one year. Basically, Your selected index rate will not apply if it exceeds the cap.
The participation rate is based on a percentage increase in the index. Additionally, the participation rate is calculated after the cap.
Some FIAs calculate interest using a spread. A percentage of interest is deducted over time. For example, assume that the annuity spread increases by 5%, and the index increases by 9%. As a result, the annuity contract will receive a 4% interest credit.
