What is a Fixed Indexed Annuity?
You might assume, based on the “fixed” part of its name, that a fixed indexed annuity, or FIA, doesn’t offer much in terms of flexibility. However, that assumption would be incorrect. An FIA offers many options to choose from. For example, you can choose what index (or indexes) your interest is based on.
Of course, the interest gained is based on not only on the performance of your selected index, but also on the method with which the interest rate is calculated.
Fixed Indexed Annuity Benefits
An example of the flexibility offered by a fixed indexed annuity is how you can select the frequency of payments. You may choose to receive them monthly, quarterly, or annually.
The biggest, and in our opinion, most important benefit of an FIA is the safety it offers. No matter what happens within the stock market, you won’t suffer any losses. Basically, this promise is backed by the claims-paying ability of the issuing insurance company. Protection, in addition to reasonable rates of return,** and a potentially more simple and easy-to-understand retirement strategy. So, if you ask us, an FIA has all the benefits the perfect financial vehicle should offer. Reach out to us to learn more!
FIA Interest Rates
The interest rate of your FIA will be impacted by a number of things. For example, participation rates, caps, and spreads. These factors are very important to consider:
It is possible for an FIA to earn a maximum amount of interest. This is called a cap, and it’s typically applied monthly or annually. The interest rate is not based on the index rate if the selected index moves above the cap. The insurance company calculates your interest based on the cap rate. Furthermore, the cap is usually followed by a spread.
Indexed interest is often calculated based on a spread. Index gains are subtracted from an amount in a given period. For example, if the spread on an annuity is 4%, and it has grown by 9%, the contract would be credited with 5% indexed interest.
Often, a participation rate is implemented into an FIA. The participation rate is used to determine the amount of index increase to be applied.
