Understanding the Way Interest Rates Are Set for Fixed Deferred Annuities

Shawn Plummer

CEO, The Annuity Expert

If you’re considering buying a fixed deferred annuity, understanding how the interest rates are set can help you make an informed decision. This guide will provide information on how your contract rate is determined and what factors influence it over time.

How Are the Interest Rates Set for My Fixed Deferred Annuity?

During the accumulation period, your money (less any applicable fees) earns interest at rates that vary with time. Typically, these rates will be decided entirely by the insurance company.

Current Interest Rate

The current rate is the rate chosen by the insurance company to be added to your contract at a specific time. The annuity company guarantees that it will not increase or decrease for a fixed period of time.

The starting rate is the interest rate that the insurance company may credit you for a certain length of time after you first acquire your annuity. In some contracts, the initial rate may be greater than it will be later. This is sometimes known as a bonus rate.

The renewal rate is the rate credited by the insurance company after the end of the term. The contract tells how the company will set the renewal rate, which may be tied to an external reference or index like the S&P 500 or Nasdaq 100.

Minimum Guaranteed Rate

The minimum guaranteed interest rate is the lowest rate your annuity will earn. This rate is stated in the contract.

Multiple Interest Rates

Some annuity contracts apply different interest rates to each premium you pay or to premiums you pay during different time periods. Other annuity contracts may have two or more accumulated values that fund different benefit options. These accumulated values may use different interest rates. You get only one of the accumulated values depending on which benefit you choose.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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