Looking for the best rate on a fixed annuity? Shopping around really pays off

If you are looking for a shelter for your money with a three-year fixed rate annuity, you can choose one that pays 2.00% annually or one that pays 4.25%! Apart from the rate, both the products are quite similar.

If you’re shopping for a five-year guarantee, the rates available range from 2.60% to 4.65%, according to Annuity Advantage. annuity rates database,

Rates on annuities with the same duration vary greatly. If you don’t shop around, you’ll almost certainly earn a lot less interest than you expected. Unfortunately, many local annuity agents represent only a few annuity companies, sometimes only one.

Before I go about shopping around, here’s some background:

A fixed rate deferred annuity (also called a multi-year guaranteed annuity or MYGA) resembles a bank certificate of deposit. It also pays a guaranteed interest rate for a specified period. Unlike CDs, annuities are tax-deferred. Issued by insurance companies, annuities are not federally insured like CDs, but state-mandated guarantee association Provide a level of security.

While rate is not the only factor choosing an annuity, it is the single most important thing when other factors are equal. Here are the major ideas.

How long will your money be committed?

Duration is the length of the annuity guarantee period. Most multi-year annuities last two to 10 years.

Long-term annuities typically pay more than shorter-term annuities. But today, the rate difference is not huge. For example, the top three-year annuities in our database now guarantee 4.25%. In seven years, you can get up to 4.72% and in 10 years up to 4.75%.

Is it worth tying up your money long enough for a slight jump in the rate? It all depends on your situation and outlook for future interest rates. One solution is to put part of your money into a three-year annuity, for example, and into a five-, seven- or 10-year contract. It is sometimes called an. referred to as annuity ladder,

How much can you withdraw when the policy is in force?

When the term is over, you will have the option to get your principal and all your accumulated interest back if you have reinvested the interest. You can then take the proceeds in cash and pay tax On accumulated interest (assuming it is an unqualified annuity). However, you can continue to defer all taxes by rolling the money into a new annuity at the same insurer or transferring a different insurer to a different insurer. 1035 Exchange,

What if you want or need some or all of your money back before this period ends? if it is some Of your money, you may have no problem, as most annuities allow penalty-free partial withdrawals. Many let you pay up to 10% of the annual contract value penalty-free. However, some annuities do not have that provision and, in turn, may pay a higher rate than a comparable annuity that provides more liquidity.

If you withdraw more than the contract allows during the term of the penalty, the insurer will levy the penalty. These surrender fees, and how they are enforced, vary widely from company to company. However, they often start at 7% to 10% of the exorbitant withdrawal amount during the first year and decrease annually.

Some annuities let you surrender without penalty if you become completely disabled, are diagnosed with a terminal illness or are admitted to a nursing home for an extended period of time.

Understanding the financial strength of life insurers

Life insurers issuing annuities are rated by AM Best for financial soundness and ability to pay claims. Letter grades range from F to A++.

A lower-rated insurer may sometimes pay a higher rate. For example, in the examples at the beginning of this article, the insurer rated A- pays the lower rate, while the one rated B++ pays the higher rate. But sometimes a company with a higher rating will pay more or the same as a lower-rated carrier.

This is somewhat a matter of personal comfort. Some people feel comfortable only with insurance companies that get at least an A or an A-rating. Others may feel comfortable with a lower-rated carrier. I recommend choosing companies rated B++ as a minimum and avoiding companies rated B+ or less.

Lesser-known (but first-rate) insurers often (but not always) pay higher rates than the largest brand-name companies with more overhead and expensive advertising campaigns.

How to shop for the best deal

If you go to a local financial advisor or independent agent, he or she will probably show you the products of a few insurers, maybe just one. You usually only see the annuity product(s) it used to offer and wants you to buy.

If you are dealing with a bank or broker-dealer, the product selection will usually be even smaller. Their agents can only sell a limited number of annuity products that banks or broker-dealers make available to them.

In other words, buying an annuity from a local, individual seller dramatically reduces your chances of getting the best interest rate.

you shop online Compare Annuities Compare apples-to-apples from dozens of insurance companies and on rates and other features. There are many reputed sites other than my company, annuity benefits,

With a rate-comparison site, you can easily avoid bad deals and secure best rate From a strong insurer. However, there are some words of caution. Just because an annuity agent has a website doesn’t mean they are experienced or equipped to do business in all states. Look for a site where the agency is licensed in all states and represents a large number of insurance companies.

Once you’ve looked at rates and made some preliminary comparisons, you can speak to an agent, clarify your goals, and see how the available products will best suit your needs. Also ask about ongoing service after purchasing the annuity. Long term relationships matter.

Your services should not end with the annuity sale. A good agent should conduct annual reviews; Notify customers of any AM Best rating changes with the issuing insurance company; Assist with beneficiary changes, death claims and annuity, if desired; and consult with the customer before the end of the initial guarantee period regarding renewal opportunities with the existing insurance company or better rates with other companies. And you should be able to reach a live person on the phone whenever you call with questions.

CEO/Founder, Annuity Advantage

Retirement-income specialist Ken Nuss is the founder and CEO of Annuity Advantage, a leading online provider of fixed-rate, fixed-index and immediate-income annuities. The interest rates of dozens of insurance companies are constantly updated on its website. He launched the Annuity Advantage website in 1999 to help people looking for their best options in a principal-protected annuity. Further information is available from the company based in Medford, Oregon. https://www.annuityadvantage.com or (800) 239-0356.

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