Fixed Annuities Are The New Savings Accounts

Fixed Annuities Are The New Savings Accounts

By Anna Neiger, InsuranceAgents.com Writing Team

Understanding Fixed Annuities And Their Benefits

Fixed annuities really are essentially the savings accounts of the insurance industry. When buying fixed annuities, you hand over a certain amount of money to a life insurance agent, who then invests it for you. Your fixed annuities are guaranteed to gain more and more interest as the years go by, until the pay out date (which is often at retirement). To start shopping for fixed annuities use our form to compare up to 5 quotes from local agents.

The five main types of fixed annuities:

1. Single-Year Guarantee Fixed Annuities. With fixed annuities, the insurance company guarantees to pay you a particular interest rate for one year, and every year after that, they can raise or lower it, until the contract ends. There are different kinds of rates, so be sure you understand what your actual rate is.

   Base rate: first year interest rate on your fixed annuities, paid by insurance company
   Bonus rate: bonus added to interest rate on your fixed annuities in the first year, paid by insurance company. (only lasts for the first year.)
   Current rate: base rate + bonus rate
   Current yield: interest rate your fixed annuities could earn during the contract, provided the insurance company does not change base rate
   Guaranteed yield: lowest possible interest rate your fixed annuities can earn
   Renewal rates: fixed annuities interest rates after the first year

   In most cases, the interest rate on your fixed annuities gets lower and lower each year.

2. Multi-Year Guarantee Fixed Annuities. With a multi-year guarantee fixed annuity, the insurance company guarantees that your fixed annuities will earn a particular interest rate for a specific amount of years. In this time frame, the insurance company cannot raise or lower the interest rate on your fixed annuities. To know how much you will have at the time of payout, calculate how much that you're investing,  how much interest your fixed annuities will earn, and for how long.
3. Market Value-Adjusted Fixed Annuities. Under this annuity, you assume the interest-rate risk, enabling the insurance company to pay you a higher interest rate. But if you break a market value-adjusted fixed annuities contract, you pay a big penalty, such as the following:
   • Pay a surrender charge
   • Decrease in account value, if interest rates have gone up, since the time you purchased your fixed annuities

   The insurance company deducts any losses from the value of your fixed annuities if you break your contract.

4. "Floating Rate” Fixed Annuities. Floating Rate Fixed Annuities allows interest rates to change from month to month, either decreasing or increasing. Under this policy, your fixed annuities collect monetary amounts according to fluctuation of rates (Rates go up, you make more. Rates go down, you make less).
5. “Pass-Through Rate” Fixed Annuities. A annuity policy that allows the insurance company to pay itself a fixed percentage of your fixed annuities, regardless of rate fluctuation. You get the rest of the interest earned after the insurance company has deducted its fee.

Fixed annuities are a good way to make money doing, essentially, nothing—much like a savings account. You invest your money in fixed annuities, let it sit and gain interest, and when pay out time comes around, guess who wins? You do. To find the lowest rates on annuities use our quick online form to compare up to five rates.

Published: Monday 20th July 2009