Indexed Interest Potential
Features of a Fixed Index Annuity
Benefits of a Fixed Index Annuity
Having a flexible and long-term approach to retirement is critical to a successful retirement. Luckily, a fixed index annuity (FIA) can provide both financial security and income stability.
Keep Your Money Safe
FIAs are linked to an external index that tracks an underlying index, such as the S&P 500. As a result, FIAs can generate income. Furthermore, you don’t have to buy stocks directly. Therefore, if the market takes a downturn, there is no risk to your principal. Instead, your insurer protects your principal. Alternatively, if the market rises, you can earn interest on your FIA. Additionally, the insurance company sets the interest rate at a reasonable rate of return.** As a result, no matter what happens to the market, your principal is safe and you can earn interest.
The Crediting Method
Additionally, with a fixed index annuity you can choose the crediting method. Your insurer determines how much index interest you will receive. Certain rules and timeframes determine the amount. Let’s look at a few popular crediting methods.
- Annually or monthly
- Value averaged over time
- Rate differences in a given period
- Your annuity contract date determines the index value.
Several Factors Influence Potential Interest Rates
If you are choosing the crediting method for your annuity, you should consider the many factors that influence your indexed interest potential.
A fixed index annuity may earn a maximum rate of interest in some cases. The CAP usually lasts a month or a year. If your selected index exceeds the cap, then the index rate will not apply. Instead, the cap rate will apply.
Participation rates are calculated by some fixed index annuities after the cap is reached. A percentage increase in the index determines the rate, not the entire increase.
The interest on some annuities is calculated using a spread. For example, assume the annuity spread increases by 4% and the index increases by 9%. As a result, the annuity contract would receive a 5% interest credit.
Find out more about the interest potential of a fixed index annuity with MTD Financial.
