A Traditional Fixed Annuity is a contract crediting a rate of interest with one year at a time. A traditional or standard fixed annuity permits the buildup of interest. This development is in support of a hard and fast rate of interest determined at the start of the contract. Factually, a traditional fixed annuity is a variant of a fixed annuity.
Traditional Fixed Annuity and its interest rate
In all years, you receive a minimum of the contractually guaranteed minimum rate of interest. A competitive rate is guaranteed for a group period of your time. Some annuity issuers do a far better job than others and have a diary of offering competitive renewal rates. Whereas, other issuers may have a record. Likely these other issuers hold or offer a renewal rate barely above the contractually guaranteed minimum.
You may earn interest at a better rate than the minimum. Nonetheless, the minimum rate is guaranteed. This decrement is inclusive of increased access options for healthcare-related expenses available with optional Rider. A point with traditional fixed annuities is that they have an annually adjusted base rate of interest. This implies that when interest rates rise, the crediting rate of interest on your contract will also rise.
An unfortunate fact is that during a rising rate of interest, major traditional fixed annuity contracts don’t realize increased crediting rates. Especially, the increment’s pace at which most contract owners had hoped for.
The only thing keeping insurance companies honest with their renewal rates are competitive annuity marketplace. If the renewal rate offered on an existing traditional fixed annuity is just too low, as compared to current interest rates available on new annuity products, policyholders surrender their contracts. The policyholders even move their money to a replacement with a higher-yielding alternate annuity.
A traditional fixed annuity right for you?
A standard or traditional Fixed Annuity is a good strategy for the one seeking fixed-rate guarantees. Mainly to lock during an annual rate and be ready to enjoy raising interest rates. These products are more favorable as a singular and versatile addition to any fixed allocation a part of a portfolio. This is often an honest strategy to ensure a hard and fast rate per annum, and have an honest chance of locking in an upswing in rates also.
Additionally, this is often one of the few fixed-rate strategies. This strategy allows you to feature money to the policy after the contract has been issued and still enjoy the contractually guaranteed rate. So, a traditional just the perfect fit for you if any of this just fits in perfectly like a puzzle to your situation.
The bottom line
Depending on your individual needs, a standard fixed annuity is often an appropriate purchase, if you are doing your homework and pick a well-designed product from a reputable company with a longtime history of crediting fair renewal interest rates. However, if you favor a hard and fast rate annuity product with a touch bit more certainty, you’ll want to think about a multi-year guarantee annuity instead.
