Minimum Guaranteed Interest Rates: What You Need to Know

When it comes to annuities, you want to make sure you’re getting the best return on your money. One way to ensure this is by looking for products that offer a minimum guaranteed interest rate. In this guide, we will discuss what minimum guaranteed interest rates are and how they can benefit you as a consumer!

Minimum Guaranteed Interest Rates

In addition to the current interest rate announced by the insurer, each fixed annuity and fixed indexed annuity has a minimum guaranteed interest-crediting rate.

This is the rate at which the insurance guarantees that it will credit, at a minimum, no matter what interest rates are in the economy or how profitable its investment assets are. Depending on the contract, this guaranteed interest-crediting rate may be between 1 to 4 percent.

The interest rate guarantee under new annuity contracts may be reduced as interest rates in the economy fall. As a result, an insurance company with minimum interest guarantees of 3 percent might elect to lower its risk by issuing annuity contracts to new customers that guarantee only 2 percent, or even 1 percent.

Bailout Rates

Certain guaranteed-rate annuities have a bailout rate, which is the rate at which a contract owner may surrender their contract without incurring penalty fees.

Minimum Guaranteed Interest Rates In Fixed Indexed Annuities

Indexed annuities typically provide two important assurances that are also available in declared-rate fixed annuities:

• If the index’s investment performance is negative, its invested principal and already-credited interest will not be affected.
• A minimum guaranteed interest rate will be credited.

Because an insurer’s guarantee of a higher minimum interest rate will effectively reduce the amount of index interest it can credit, annuity contracts with guaranteed minimum interest rates are generally lower than other fixed annuities. Even though indexed annuities have a lower guaranteed minimum interest rate, the guarantee ensures the contract owner that interest will be paid even if the change in the index closing level is negative.