Fixed annuities come in two forms – MYGA (Multi-Year Guaranteed Annuity) and floating rate accounts. MYGA’s are the most popular and the most common.
With multi-year accounts, the rate is locked in for your chosen duration. Rates are guaranteed by the insurance company and will neither increase nor decrease over the selected term.
We see interest in short-term annuities offering 2, 3, and 5-year terms. These policies allow for more flexibility and liquidity. Our longer-term clients prefer 7 and ten-year accounts. Others will go as long as 15 or 20 years if desired.
Less common are floating-rate fixed annuity accounts. Interest rates can fluctuate each year and may increase or decrease depending on the economic environment. All policies include a floor (minimum interest rate) that cannot be breached. Multi-year annuity accounts are popular with our clients as they provide more certainty and known returns.
Compounding Interest Versus Simple Interest
Which is best, simple interest or compounding interest annuities? The answer to that depends on how you use your account. If you don’t plan on withdrawing your interest, then compounding growth usually offers the highest rates. Most insurance companies only offer compounding annuity policies.
There are, however, a few policies that credit simple interest. If you plan on withdrawing your interest income, then a simple interest plan can outperform a compounding policy. It all depends on the underlying rate of the fixed annuity contract, of course.
We can run the numbers and compare them for you. Let us know your intentions with your interest income and we’ll make suitable recommendations.
Return Of Premium
Seasoned fixed annuity investors know their premiums and interest gains are 100% accessible at the end of their chosen term. But what many don’t know is that a handful of companies offer a Return of Premium feature during the annuity surrender period.
This is advantageous for those who desire more liquidity and might need access to their entire deposit. It’s also an advantageous feature when interest rates are increasing. Companies like The Standard, Nationwide Life, Symatra, Corebridge (formerly AIG), and Mutual of Omaha offer this feature on some of their policies.