During the accumulation periods, money in a fixed annuity (less any applicable charges) earns interest at rates that change at the insurance company's discretion.
Impact of Low-Interest Rate Environment
The first three rates described below can be negatively affected by a low-interest rate environment. The fourth is a minimum rate guaranteed in the contract:
- Current Interest Rate: The current rate is the rate the company decides to credit to your contract at a particular time. The company will guarantee it will not change for some time period.
- Initial Rate: This is the interest rate the insurance company may credit for a set period after the purchase. The initial rate in some contracts may be higher than it will be later. This is often called a bonus rate.
- Renewal Rate: This is the rate credited by the company after the end of the set time period. The contract described how the company will set the renewal rate, which may be tied to an external reference or index.
- Minimum Guaranteed Rate: The minimum guaranteed interest rate is the lowest rate an annuity will earn no matter what the current interest rate environment may be. This rate is stated in the contract, and varies among companies.
