Where to Find Top Fixed Annuities
With an increasing number of investors adopting a more conservative approach to long term savings and investments, the fixed annuity market is beginning to heat up. As the stock market continues to bewilder and spook investor of all types – young, old, novice and experienced – mutual fund redemptions are reaching an all-time high. A lot of this money is moving into cash and equivalents and a good portion is finding its way into a resurgent fixed annuity market. This raises the question for those who are just discovering fixed annuities as to where to find top fixed annuities.
Although fixed annuities are issued by life insurance companies, they are offered for sale by banks, brokerage firms, independent advisers and through direct sellers as over the internet. It’s a vast and highly competitive market place. Sometimes having a lot of choices can be a good thing, however, there are literally hundreds of companies offering a multitude of annuity products which can leave the average person confused and paralyzed.
Investors, especially those who have had bad experience, want the best for their money, so they only want to deal with the top fixed annuities. Annuities are somewhat more complex vehicles than mutual funds and CDs and anyone with a sense of financial history would know that finding the top fixed annuities involves more than just tracking down the ones paying the highest interest. Therefore, the search for the best needs to begin with a clear understanding of what makes a top fixed annuity.
Fixed annuities compete in the same rate market as bank CDs and other fixed yield investments. Historically, the yields on annuities have exceeded those of CDs and other savings vehicles. Most fixed annuities offer a first year bonus rate after which the rates are adjusted to the book value of the underlying investments of the insurance company. Some offer a longer period of a fixed yield guarantees that are usually tied to the size of the deposit and, or a fixed term. The big concern for investors should be those annuities that offer an unusually high initial or bonus rate which are followed by rates closer to their minimum guaranteed rate in subsequent years.
Tiered Rate Structure
Like CDs, the yields on many fixed annuities are tiered so that they reward bigger deposits made for longer timeframes. As with CDs, in order to actually earn the higher interest rate, the deposit must remain untouched for the duration of the timeframe. The structure of these tiers and the rate of interest applied at each tier level vary from one provider to another and it is, perhaps, the biggest competitive differentiator.
The tiers usually run from 5 years to 10 years with combinations in between. The difference in rates can be as much as .75% to 1% between a 5 year deposit and a 10 year deposit. While most require a minimum deposit of between $5000 and $10000, some fixed annuities offer a bonus rate for larger deposits. For instance, a $100,000 deposit may be awarded an additional bonus rate of .30%.
Withdrawal Period and Fees
Some critics of fixed annuities point to the withdrawal or surrender period as a disadvantage as it penalizes early access to deposited funds. Fixed annuity providers have turned this around as a competitive advantage by offering reduced withdrawal fees, shorter withdrawal periods or by waiving fees altogether.
Most withdrawal periods extend for 5 to 10 years during which an early withdrawal (up to 10% of the accumulated funds may be withdrawn each year) would incur a fee. In some cases, the withdrawal period coincides with the guaranteed interest period (e.g., A 5 year interest guarantee period would have a 5 year withdrawal period). The fees typically start as high as 7% and then decline by 1% each year of the withdrawal period.
Fixed annuities that offer shorter withdrawal periods and lower fees may be best for those who are concerned about having access to their funds, however, if this isn’t a concern, then you can concentrate on the other competitive features.
Guaranteed Return of Principal
A guarantee of principal is standard in all fixed annuity contracts so you probably wouldn’t consider this feature when weighing competitive advantages of one provider versus another. But, when you consider that this guarantee is only as solid as the provider that backs it, the experience, strength and credit worthiness of the provider becomes a competitive issue. A high interest rate and a liberal withdrawal schedule offered by a provider with a weak balance sheet or an underperforming investment portfolio should be carefully scrutinized. Greater peace of mind may have to come at the price of a slightly lower interest rate that is offered by a highly rated, well established annuity provider.
This should probably be the first step in your search for the top fixed annuity. By filtering the huge list of providers through the criteria of the top rating agencies, such as A.M. Best and Standard & Poor’s, the search can be narrowed quickly to those providers that meet the tough standards for the highest ratings.
Where to Start Your Search
With a clear understanding of how these key features are positioned for their competitive advantage, and with your list narrowed to the more highly rated companies, the search can begin. Shopping and comparing online can streamline the search in a way similar to shopping for a new car. Sites such as AnnuityFYI.com provide a complete comparison of fixed annuities by provider along with their A.M. Best Rating, interest rates, tier schedule, withdrawal schedule, minimum deposits and break points for bonus rates.
Armed with your short list of providers and the feature specifications for their fixed annuities, you will be in control as you contact the companies for additional product information. Some fixed annuities can be purchase through direct sellers on line. If you decide to work directly with a provider’s selling agents, it’s best to gravitate towards the ones that ask more questions and demonstrate a genuine interest in your situation.
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