Finding High Interest Annuities
High interest fixed annuities are a refuge from the uncertainties of the equity market because their rate of return is guaranteed, and often beats CDs and money market accounts. When looking for high interest annuities, expect to examine not only fixed annuities, but also variable and equity-indexed annuity products. Hybrids of these products are also a good place to look, but must be scrutinized carefully.
Benefits of High Interest Annuities
Annuities designated as “high interest” are typically variable annuities, yielding rates upwards of 14%. Long-term fixed annuities can also be high-interest, especially in relation to CDs and money market accounts.
The prime benefit of a high interest annuity is obvious — faster growth — but other benefits include lifetime income options, probate avoidance, withdrawal allowances, and tax-deferral.
High interest fixed annuities provide a guaranteed, fixed rate of return regardless of market performance. When comparing annuity rates to analogous products like CDs, it's important to factor in the tax-deferral annuity benefit. With a CD your growth is taxed on a yearly basis. With an annuity, growth is not taxed until it's cashed out, which typically occurs in the distant future, after the interest has had time to compound.
High Interest Fixed Annuities
When investors buy a fixed annuity, their money is invested into a general account by the insurance firm that sells the product. The insurer also manages the general account, so the investor does not know what investments are involved. The insurer assumes the risk of these investments. In exchange for the investor’s money, the insurer guarantees a fixed rate of rate.
Fixed annuities are not securities, since investors do not take on any market risk. In fact, fixed annuities are not equities at all, they're loan-based vehicles that deal with secure government bonds, treasuries, and high-quality mortgages. Loan-based investments are more stable than equity investments; because of this their rates of return are guaranteed, but are also generally lower.
High Interest Variable Annuities
If you're interested in the highest possible annuity rate, a variable annuity is the product you should be considering. Variable annuities are naturally riskier because your money is invested in an equities portfolio, however, this risk is counter-balanced by long-term rates of return in the range of 10-14%. For younger investors, this is an acceptable trade-off. Variable annuities are most suitable for long-term, aggressive growth strategies.
How to Find A High Interest Annuity
Finding high interest annuities involves comparison shopping. Of the dozen or so high-rated insurance providers out there, each one offers a wide assortment of different annuity products, from fixed to variable and everything in between. Many providers offer hybrid products that feature the best of both worlds, or neither, depending on how the contract is structured.
The same strategy should be employeed for finding high interest annuities as finding high interest CDs. Because each insurance firm establishes its own rates and designs its own contracts, you must carefully weigh multiple quotes against each other and their respective contract provisions. One quote can be higher but offer a stiffer withdrawal penalty, or a lower withdrawal allowance.
Your final choice of annuity will depend on which plan best meets your needs. For example, some investors might prefer the higher rate despite higher withdrawal charges, because their financial situation isn't likely to force them to withdrawal early.
Whatever the ultimate decision, investors should stick to trustworthy, A-rated life insurance providers. Rarely does a firm's security rating impact the contract's interest. This means you can get the security for free by shopping at a large firm.
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