Fixed annuity rates tend to follow the long-term CD rates, but are frequently higher. Even if the rate is the same as the long term CD, the tax deferral of the annuity allows the annuity to grow faster than the CD.

Early annuities had deceptive rates of return, not found in most present day annuities. Often these annuities showed a higher interest rate, but after the company took fees every year, the annuity rates dropped dramatically. Today, most fixed annuities don’t have annual fees unless your deposit is below a specified contract minimum on some annuities. If you have one with a fee that triggers below a minimum amount, you need to calculate that into the return if you’re annuity has a small balance.

 

 

 

 

If you find the annual fee dramatically reduces the higher interest rate, find an annuity that offers a lower interest rate but doesn’t have the proposed fee for a minimum deposit.

Insurance companies set annuity rates not only on present interest but also on their forecast of the future interest rates. Just as you’ll occasionally notice banks offering higher short-term rates and lower rates for long-term contracts when they believe interest rates will drop, annuities also do the same thing. It’s simply more difficult to see on an annuity since there are no short-term contracts.

In times when most people feel that interest rates will drop in the future, you might see the rate of the annuity lower than the one-year rates for CDs. Insurance companies make their money by using your investments, just like banks. If interest rates drop, they have to be prepared to make enough to offset the interest they promise on contracts. Rather than take chances, they offer a lower rate for the longer term if they expect interest rates to drop.

In years where insurance companies anticipate a rise in interest rates for future years, you’ll find fixed annuity rates far higher than those of short term CDs. The insurance companies secure long term, higher interest rate contracts to back the funds in their annuities.

A fixed annuity, like any other investment product, offers you the best possible annuity rates the and still make a profit. Some companies are simply better at making a profit and can offer higher annuity rates.

Look for fixed annuities that not only offer high upfront rates and locked in initial guarantees, but also those that offer higher guaranteed minimum interest rates. For many years, insurance companies offered minimum 3 percent minimum guaranteed annuity rates on their fixed annuities. Many people scoffed at these low rates until interest rates dropped to a historic low of 1 percent or less. Then, these low guaranteed rates became highly desirable and people ran to invest their money into a product they previously ignored.

A fixed annuity is a conservative product that grows slowly but steadily. While the growth may be slower than some variable investment products, fixed annuities have guarantees that protect your funds from the hazards of investments like stocks. Even in difficult times, you’ll continue to receive interest in a fixed annuity with guarantees on your principal.