Multi-Year Guarantee Annuities - Opportunity for Annuity Interest
Do you like most characteristics of fixed annuities but don't like the fact that the annuity company can change your annuity interest rate each year?
Fixed annuities can be popular among seniors. They are easy to buy, you know exactly how long you must tie up your money, and the IRS will let you defer the income tax on the annuity interest. But one point that may have stopped you from investing in an annuity is that some traditional fixed annuities do not lock in the interest rate for the duration of the contract. The rate changes every 12 months. And because you are locked in with early withdrawal penalties (surrender charges) you can't just move your funds to another company.
This means that after the initial period, which is typically one year, the return that the annuity company pays could possibly go higher or lower each year thereafter. However, there is a type of annuity that fixes the return for the entire contract?s term. This takes away all uncertainty as to what annuity interest you'll receive through the entire annuity term.
Multi-year guarantee annuities provide fixed and level annuity interest for the entire term so you won?t get any surprise notices during this time. For this reason, they are also called CD-annuities or CD-type annuities. You select the term, which generally ranges from three to 10 years when you make the investment. Generally, the longer the term, the higher the rate. Here's an example of annuity interest rates as of 9/20/11:
5-year rate lock 2.9%
6-year rate lock 2.85%
7-year rate lock 3.20%
8-year rate lock 3.5%
9-year rate lock 3.7%
10-year rate lock 3.85%
At the end of the term, you will usually have a 30-day window to withdraw all or part of your money, or renew the contract for another multi-year period. The withdraw charges expire when the term ends.
Of course, most investment decisions carry trade offs. if rates rise, you may get more annuity interest each year in the traditional fixed annuity that changes its rate every 12 months. With the multi-year guarantee annuity, that is not a possibility as the annuity interest is static for the term.
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