Annuity Rates

Choosing the right annuity can be overwhelming. Interest rate information is important, but the sheer amount of varying factors and information sources can render a person helpless in their decision.

To make the selection process less complex, it is best to only focus on the key interest rate components. Variable and equity-indexed annuities float with the stock market, so mastering every nuance of interest rates is not necessary.

When selecting a Fixed Annuity , there are four key interest components to understand.

Base Guaranteed Rate : The base guaranteed rate is the minimum rate per the contract the annuity will return. It may range from 1-3.5%. A CD-Type Annuity, however, will guarantee a higher rate for the contract term.

Current Rate : The current rate represents the rate the insurance company is using for in-force contracts that year. This rate can change every year and every company will issue a rate determined by their portfolio performance, future projections and other factors. Thus, competitive rates are bred. A higher rate would indicate that company’s financial stability and future outlook may be better than their competitors.

Bonus Rate : A bonus rate may be an additional incentive to an annuity contract, some exceedingly high. It is important to note that some bonus rates are only applied at contract maturity. If the contact is cancelled early, there may be an additional surrender fee. Larger bonuses will have longer surrender periods due the increased cost to the company. Ensure all other contract terms are satisfactory before you consider a bonus rate.

Yield to Surrender : The most important interest rate factor is the effective rate of return projected for the contract time period, also known as the yield to surrender. The yield to surrender should be specified as a current rate basis and guaranteed minimum rate basis. This will also help determine the validity of a bonus rate.

After understanding the four key interest rate components, you should become familiar with the following terms.

Renewal Rate: A company’s renewal rate is a good predictor of their long-term performance. You can see how that company historically performed by looking at past rates in past economic cycles. Before investing money with a company, you will want to see what affects past inflation and deflation had on the company’s returns. This will be a good indicator to you of how the annuity will perform in the future.

Bailout Rate: You will only find a bailout rate for some annuities, usually very high quality contracts by very stable companies. The bailout rate is the threshold in which an investor may cancel their contract with no penalty if the declared interest rate meets or drops below it. The bailout rate is typically right above the base guaranteed rate. The bailout rate gives the investor more options without penalties.

These major components are the most important factors to understand in regards to interest rates when selecting an annuity contract. Don’t forget, other factors other than interest rates come into play.

The popularity of annuities is expected to rise as more people are diversifying their portfolio. Because of the large volume of products on the market, selecting the right annuity can be difficult.

Annuity Straight Talk has easy to understand guidelines to help you in selecting an annuity that is right for you. Our website details the important facts to look for before you purchase a product.